Wednesday, September 2, 2009

The Debts of the Spenders: Chaikin Money Flow and Equity Indices

The Chaikin Money Flow (CMF) is an interesting technical indicator that is based on the daily readings of the accumulation/distribution line. The premise is to see the allocation of "hot" or "cold" money based on buying and/or selling pressure.

I have included charts above for UUP (the dollar bull etf based on the DXY index), S&P 500, Dow Jones Industrial Average, and the Nasdaq. Draw your own conclusions on where the money is headed. Before coming to an answer right away, please be cognizant that what may be seemingly obvious at first glance can also be a contrarian indicator. Also note the important role that volume can play.
I also encourage readers to experiment with different time scales on their charts to see what correlations are most effective. You might also see some interesting results by overlaying some indices against their inverses (HINT: try UUP w/FXA).

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