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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
Can you help answer these questions from other members on NexusFi?
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
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
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
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.
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.
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.