Saturday, June 07, 2008

New trend taking shape

The S&P 500 closed at 1360 on Friday, down 5.5% from its intra-day high of 1440 on May 19. Since breaking through the lower trendline on May 21, the S&P has formed a series of lower lows, which is one of the hallmarks of a downtrend.

The S&P high on May 19 came with an additional cautionary signal which hinted that the rally was over: the Money Flow Index (MFI) was lower on May 19 than during the previous S&P peak on May 2-6.

There's still plenty of room for more pessimism in the sentiment gauges, and there's no technical indicator of a bottom yet, so I don't think this selloff is finished yet.


Keith Wilson said...

You've just added a new term to my vocabulary: "MFI" the money flow index. What is the significance of the MFI and what is it's relationship to other factors, such as P/E, sentiment, put-calls, etc?

Your on-going graphs analyzing the data are great (once I read your comments on how to interpret them)
Keep up the great work!!

Jody said...

The Money Flow Index simply compares the market volume on days when the market went up with the volume on days when the market went down. A high index value means there was more volume on the most recent up days, while a low index value means there was more volume on recent down days.