You mention money flow diving in one of your recent reports. What do you find to be the most accurate measure of this? I have seen so many with different values on the same day, I'm getting dizzy trying to come up with the best measure. (May 29, 2002)

  Money flow has many different heads to it. We look at Bloomberg money flow and TC2000 moneystream when determining money flow levels for our stocks as we have watched them over a long period of time and are comfortable with what they show. There is a caveat on all money flow readings, however: they work well for some stocks in some situations and then in other situations they just play follow the leader, i.e., following the stock up or down and not giving any real forecasting insight. Thus we quite often do not use just the raw data, e.g., that money flow is high. While the raw data does work for some stocks, you have to look at the history of the stock to see how well it has performed in the past.

What we focus on mostly with this type of indicator (as well as stochastics and MACD for example) is whether there is a divergence. A divergence is something that is not in sync with the rest of the chart. For example, if we see a stock that is in the handle of a cup with handle base (that is, moving lower on low volume) but money flow is racing up ahead, that is a positive divergence in that money flow is indicating there is a lot of buying going on and the price will usually follow. On the other hand we may see a stock moving up in price and show a negative divergence, i.e., money flow is moving down or tanking ahead of it. That may indicate that the move is running out of support. Go look at the price/volume action and other indicators to see if they agree or disagree with that proposition and thus confirm what you are seeing.

In sum, money flow is a secondary indicator that will either confirm or potentially call into question your analysis. Again, we really like to see those divergences between money flow and price as those can act as an early warning signal for potential plays.


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