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How to Compare Volume Value of Small Cap and Large Cap Stocks
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How to Compare Volume Value of Small Cap and Large Cap Stocks

  #1 (permalink)
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How to Compare Volume Value of Small Cap and Large Cap Stocks

I am using Money Flow Indicator in this example, but same dilemma is faced when we have to do direct comparison between Small Cap and Large Cap Stocks, through volume value based indicators.

If we take example of Technology Sector from NASDAQ Stock Exchange. The market capitalization of MSFT is around 390 Billion, INTEL is around 180 Billion and for the AMD it is just around 3 Billion. Because of this huge difference in the Market Cap and daily trading volume value, it is not possible to do the direct comparison of Money Flow Changes between them.

For example, suppose today Intel has received a positive Money Flow of $ 50 Million and AMD has received $ 25 Million. Now in basic calculations it would appear as if Intel has received DOUBLE Money Flow compared with AMD and therefor twice as strong.

But when we compare these values with their own past average Money Flow values then it becomes clear that Intel MF is just half of its normal daily MF average over the past one month whereas AMD MF is 5 times of its normal daily MF average over the past one month.

Now this observations changes the picture completely and now AMD would look much stronger then Intel from the Money Flow perspective.

My question is - How to NORMALIZE this Money Flow data in some way so that an apples-to-apples comparison can be made and a direct comparison could be done between the different stocks and sectors to see their relative strength or weakness from a given indicator's perspective?

If you have got any idea by which such comparisons can be made between different stocks or futures which have huge difference in trading volume then please share your views.

Thank you so much

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  #3 (permalink)
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ab456 View Post

My question is - How to NORMALIZE this Money Flow data in some way so that an apples-to-apples comparison can be made and a direct comparison could be done between the different stocks and sectors to see their relative strength or weakness from a given indicator's perspective?

you may have already considered this but a simple division of the Money Flow number by Market Cap may make comparisons possible

By your data for Intel and AMD

the ratio of Money Flow/MarketCap:

Intel: 50 million/180 billion = 50/180,000 = 0.00028
AMD: 25 Million/ 300 million = 25/300 = 0.083

I have done no real testing but this ratio would show the relative strength of AMD to Intel as being greater.

However, as I see performance of Intel versus AMD in charts.... I think your data for money flow is fake and flawed as clearly from charts Intel is killing AMD as can be shown in these charts

Intel

INTC - SharpCharts Workbench - StockCharts.com

AMD

AMD - SharpCharts Workbench - StockCharts.com

Now I have never dealt with naked money flow numbers or market cap for that matter so I will double check both

Intel current Market Cap: 181,554,250,000
AMD current Market Cap: 2,054,652,084

so your Intel number appears to be correct but your AMD market cap is not right

Stock Market Quotes | Stock Market Quotes and Symbols

now let's look at Money Flow which by definition is:

Raw Money Flow = Typical Price x Volume

I guess that you are looking not for a long term projection but rather a day-to-day process... so let us do that first and see if that is a good choice and not an average money flow over a period of say 14 business days

closing price/volume/money flow on Dec 26/2014

Intel: $37.55 x 14 million = 525.7 million
AMD: $2.65 x 4 million = 10.6 million

now using those new market cap numbers let's look at those ratios

Intel: = 525,700,000/181,554,250,000 = 0.0029
AMD: = 10,600,000/2,054,652,084 = 0.0052

this calculation with better data shows AMD only 2x as strong as Intel if we believe this calculation.

I think choosing a single day for such an evaluation to be a bit dicey as anything can happen on a single day.

I would use at least a 5 business day average Money flow...not a single day.... also if the price dropped I will put it as a negative money flow

............. Dec 19 ...... Dec 22 .... Dec 23 ...... Dec 24 ..... Dec 26 ...... Total ....... Average

Intel ... -2792.8M .. 1087.6M ... 823.8M ..... 453.0M ..... 525.7M ..... 97.3M ....... 19.46M
AMD ....... 36.9M ...... 39.9M ...... 22.1M ...... -12.2M ...... 10.6M ...... 98.9M ....... 19.78M

the ratios using the average money flow

Intel: 19,460,000/181,554,250,000 = 0.00011
AMD: 19,780,000/2,054,652,084 = 0.0096

Using this method it clearly shows AMD ahead of Intel currently.

Here are the charts and without spending anymore time on this... I actually like AMD over Intel right now

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this is my normal chart for buying/selling.

Those small doji's in the Intel chart makes me think the price will fall back and not breach the resistance... it might look like it is breaking out but not yet as I see it as the BBwidth is flat ... not rising

AMD is also trying for the resistance but is having trouble passing the 50day SMA... but the BBWidth is still falling... it is not ready for a serious move til at least the end of next week.

These of course are decisions that are not being made at an optimum time... judgements like this made between Christmas and New Years are iffy at best

You presented an interesting idea and on thinking about it this way there may be merit for it..... but it would take a lot of testing to check it out.

Hope you find this interesting

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  #4 (permalink)
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Thank you so much for taking time to express your idea so nicely @Underexposed

The data that I posted was just to express the idea / concept, I am not sure if that data is correct.

My best wishes for the New Year 2015

Regards

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ab456 View Post
Thank you so much for taking time to express your idea so nicely @Underexposed

The data that I posted was just to express the idea / concept, I am not sure if that data is correct.

My best wishes for the New Year 2015

Regards

Best in 2015 for you as well.

Well check out the data and personally I would make sure the data is correct when you pose a problem as it can be off-putting when you work something out and find the given data was faulty ... but I always double check.

I think your thoughts have merit and I sketched out what I think could be done with it.... try it out yourself with other stocks and let me know if it still holds true.


Quoting 
Those small doji's in the Intel chart makes me think the price will fall back and not breach the resistance... it might look like it is breaking out but not yet as I see it as the BBwidth is flat ... not rising

AMD is also trying for the resistance but is having trouble passing the 50day SMA... but the BBWidth is still falling... it is not ready for a serious move til at least the end of next week.

These of course are decisions that are not being made at an optimum time... judgements like this made between Christmas and New Years are iffy at best

If you look at the charts for AMD and INTC you will see my observations in my previous post seem to be coming true ... AMD is rising (no breakout yet though) and INTC is falling like I thought it would.

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