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They Say You Should Follow The Money...
Chaikin Money Flow tells us what the institutional big boys are doing.
We’ve had many failed reversals in 2022, and all but one occurred on net selling pressure. That signaled false rallies or “dead cat bounces" ahead, which came true.
How do we determine net selling pressure? With the Chaikin Money Flow. This is a very powerful tool that can confirm or negate other technical signals you use. CMF works exceptionally well with Bollinger Bands and MACD divergences.
Without diving into details on its calculation*, just know this: the CMF tells us what big institutions are doing.
If the money flow is positive, they’re buying. If the money flow is negative, they’re selling.
Why is institutional money flow important?
Institutions have so much money to play with, you definitely want to be on their side. If you own a stock institutions are buying, it’s going to be hard for that stock to go down. And vice versa: own a stock institutions are dumping, and you’re doomed.
Mark Chaikin, the guy who invented it, is a Wall Street legend. He called the bear market with this video that went viral 8-9 months ago.
In my opinion, he’s right up there with John Bollinger in terms of his market analyses.
By the looks of it, we’re in for a nice relief rally. We have serious institutional money flow, with GOOD earnings reports, and a major trendline break.
Next stop resistance is 4,150.
I still believe the market needs great news to sustain it higher.
As the “deck” of the market unfolds, we will know if that’s happening or not. But as of now, it looks great for bulls.
*Calculation of Chaikin Money Flow
CMF = n-day Sum of [(((C - L) - (H - C)) / (H - L)) x Vol] / n-day Sum of Vol
n = number of periods, typically 21
H = high
L = low
C = close
Vol = volume