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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (15367)	9/23/1998 2:07:00 AM
From: DanZ	Respond to of 152472

Joe, I have to disagree with you. Money flow is not a psychological indicator. If you place a limit order to sell at the offer and get filled, then a buyer initiated the trade that allowed you to sell your stock. This is positive money flow because the buyer initiated the trade. If you sell at the bid, then you as a seller would have initiated the trade and created negative money flow. Your intention to sell is not the salient point. It's who initiates the trade that is important. Let's say that a stock is bid 49 3/4 and asking 50. Further, let's say that the bid size is 8000 shares and the ask size is 6000 shares. Somebody sells 5000 at the bid and no further bids are placed at 49 3/4. The size would then change to 3000 x 6000 and the net money flow would be -5000. Somebody then buys 1000 shares at 50. The size would change to 3000 x 5000 and the net money flow would be -4000. Suppose somebody then places an order to sell 4000 shares at 49 3/4. The asking price would drop to 49 3/4 with a size of 1000 and the net money flow would be -7000. The seller would only get a partial fill with 1000 working at the new offer. In this example, it is assumed that no new orders to buy or sell are placed because the size would not change as I portrayed here if additional orders were received by market makers. The purpose of this example is to show how negative money flow can cause a stock price to fall. If more shares are sold at the bid than somebody wants to buy at that price, the bid will fall and the money flow will be negative. This is not psychological. Money flow is a mathematical calculation that measures the supply and demand for a stock, or accumulation and distribution as it is also called. Yes, one party buys and another one sells. But there is only so much supply and demand at every price point and if more shares are sold at the bid than are waiting to be bought at the bid, then the price will fall. It probably isn't a good idea to use money flow alone. Volume, price direction, and where a stock is trading within it's trading range are also important considerations when analyzing money flow. For example, I think it is particularly bearish when a stock has distribution near a 52 week low. On the other hand, it is bullish when a stock has accumulation near a 52 week high. Negative money flow over a short period of time is not a big concern if a stock price is not declining because it indicates that there is enough demand to absorb those who are selling. However, if this occurs near a 52 week high over several days and there is no upwards movement in the stock, I would be careful because a decline could be imminent. This is a classic distribution pattern that would also show up as resistance on the chart. Dan