recent leaders in the IBD 50 stocks index show why it’s important to
pay attention to the under-lying action in the AD and CMF graphs…
a look a these two stocks that were recently leaders in the IBD 50
index (a popular index published by Investor’s Business Daily / see www.investors.com ). In fact, both stocks had been ranked #1 in the index in recent
weeks. QIWI and FLT recently sold off hard and are no longer ranked in
that index….but the warning signs were there in the AD and CMF graphs.
was IBD’s #1 ranked stock in December of 2013. For good reasons, it was
in a rare ascending base, the most bullish of all bases for investors.
However, QIWI is a good study in understanding how money flows in and
out of a stock BEFORE the results reflect that movement. The underlying
signals from the Accumulation-Distribution (A-D) line and the Chaikin
Money Flow (CMF) were offering stern warning that the big money
institutional investors were abandoning the stock. Both CMF and AD began
to plunge together in November, and the situation was not correcting
itself in December even as the price of the stock rose. (This is called
the distribution phase of the trading cycle, meaning that “the smart
money” was abandoning the stock before the sell-off phase set in.) FLT
showed similar bearish action in its AD and CMF graphs, though a bit
more subtle than that found in QIWI’s graphs.
prefer the On-Balance Volume (OBV) graph which attempts to combine the
factors of both cash flow and accumulation into one reading. I prefer
looking at each separately because sometimes, the AD line can be falling
but the CMF line is rising or stable. The CMF line is the more
important of the two, because that tells me if the institutional money
is still in the stock. CMF detects cash flow movements by comparing movements between closing and opening prices as compared to highs and lows on the same days. This is further quantified by multiplying against share trading volume. Without sounding too technical, this is an indirect way to quantify whether cash is moving in or going out of a stock.
The AD line is measuring the number of up-ticks
vs. down-ticks, but a lot of ticks can reflect small money trades
(retail investors). OBV does not parse out these differences as well as
looking at CMF and AD separately, in my opinion.
I have long tracked IBD 50 stocks using my proprietary signals with charts from www.stockcharts.com , as a way to better understand the precise entry and exit points of stocks with that index. IBD offers up their own charts, which are also useful, but I feel more confident if I can follow my cues alongside of IBD’s charts.
I have included my chart on QIWI below which is marked up with my comments.
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