Today, I introduce a new Indicator the MFI-Money Flow Indicator then apply it to trading candidate Under Armour-symbol UAA.
Why? To analyze another indicator to upgrade the quality of our Simple Simon buy/sell system.
Although satisfied (but never complacent) with the CMF-Chaikin Money Flow, just good enough is not in my vocabulary and why I audit what we have and keep an open eye for opportunities.
Remember-no indicator is inherently good or bad. We use what the Institutions use to make higher-quality decisions.
Let’s look under the hood of both indicators.
CMF-Chaikin Money Flow Developed by Marc Chaikin, (CMF) measures the amount of Money Flow Volume over a specific period. Chaikin Money Flow simply sums Money Flow Volume for a specific look-back period, typically 20 or 21 days. The resulting indicator fluctuates above/below the zero line just like an oscillator.
MFI-Money Flow Index The Money Flow Index (MFI) created by Gene Quong and Avrum Soudack, is an oscillator that uses both price and volume to measure buying and selling pressure. As a momentum oscillator tied to volume, the Money Flow Index (MFI) is best suited to identify reversals and price extremes with a variety of signals.
How do I use the MFI? Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling pressure). A ratio of positive and negative money flow is then plugged into an RSI formula to create an oscillator that moves between zero and one hundred. Let’s study how it works when it crosses above 20 and below 80 on the UAA chart.
Fundamentals For years, UAA was a ‘must have’ stock for momentum traders/investors. Their logo is on clothing and footware everywhere. Unfortunately for the UAA Bulls, Institutions began profit taking late in 2015. Smart investors were able to see the signals like decreasing CMF and took profits. Currently, previous UAA followers/holders and EOM Members are looking to fine-tune their entry points.
Key Points on UAA
1. Top Box–not trading with a positive correlation to the SPX
2. Previous and current pullbacks are highlighted
3. CMF (10) is increasing but has not turned positive
4. MFI signaled a sell signal in September 2015 when it dropped through 80 and did not retrace
5. MFI and CMF gave positive signals in early 2016 as buy signals
6. MACD Histogram has turned positive along with the RSI
7. Slow Stochastics is still under 20-not a buy signal
Learn the MFI how it works then compare it to the CMF. Analyze the MFI and CMF with other stocks previous sell and buy signals and determine if and how the Institutions use them.
Tomorrow, I begin a new series with high-dividend and Playbook candidates to help with the trading portion of our portfolios.
Send questions to firstname.lastname@example.org.
Enjoy your day,
David O. England
Plan your work, work your plan, and share your harvest! 1 Timothy 2:1-2
This information is for Educational purposes only. It shall in no event be construed or interpreted as an offer or recommendation to buy or sell securities of any kind.
DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy and Associate Professor Emeritus of Finance. This column is presented for educational purposes only and not intended as financial advice.
If you have a question or comment, contact David England at email@example.com