A few weeks ago we closed a position in our American $33,000 Portfolio based in part on the money flow index:
The graph on the bottom is the money flow index, a measure of momentum that is sometimes a leading indicator of price movement in a stock. The MFI takes into account whether more shares are bought on the uptick or downtick. For example, a stock could open at $1, then 100 shares trade hands at $1.01, then 10 shares trade at $1 again. The price is flat but the MFI would show positive momentum because more shares were bought on the uptick suggesting motivated buyers.
With that in mind let's have a look at seven biotechnology and pharmaceuticals companies that have rallied recently and see if we can spot any indications of further rallying.
A Rallying Name With Bearish Flow
Neptune Technologies & Bioressources (NEPT) has been in an uptrend:
A month ago the motivated buyers dominated and Neptune rallied. But the momentum belongs to the sellers now, and that shows no signs of abating. Compare to fellow bio-buddy Obagi Medical Products, Inc.(OMPI)
Both stocks enjoyed a bounce this week, but OMPI's MFI gives us reason to believe the upswing can continue, whereas NEPT's MFI says "get while the getting is good!"
Amgen (AMGN), by comparison, is less clear. It has declining money flow like NEPT, but the motivated buyers and sellers are at the equilibrium point of 50:
Rallying Names With Bullish Flow
Achievers Ariad Pharmaceuticals (ARIA), Cornerstone Therapeutics (CRTX), IBIO (IBIO), Peregrine Pharmaceuticals (PPHM), and Pluristem Therapeutics (PSTI) all look like they can sustain their rallies according to the MFI.
Ariad seems to have some motivated buyers sustaining support for the rally to continue:
Cornerstone seems punished way too severely according to the money flow which remains firmly in motivated buyers territory:
IBIO's buyers likewise seem to have stuck around, even if not in droves:
Peregrine has been for buyers only and they have stuck around to out-number sellers:
Pluristem's buyers remain motivated:
Also a quick note here: some people will read the positive money flow and say that this stock has moved into "over-bought" territory. To me that is only as good as saying that something is going to turn around just because it has been going up for a while and is "due." Not terribly helpful.
Keeping an eye on the money flow can help show the momentum of buying and selling even when the price does not, as in the example at the top, or even when the price is counter, as with Neptune's latest move up.
Technical indicators alone are never enough reason to make decisions, underlying business catalysts can override the chart at a moment's notice, but indicators like the money flow can be a useful part of our overall diligence and especially at identifying good entry and exit points.