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Has anyone programed this indicator? Is so, would you be so kind as to post it. Below is a description:
Dick H.
"Smart money is in the market for the most liquid and highly capitalized securities available. Those funds must go into and out of the market via large blocks of stock. It isn't practical for a multi-billion dollar hedge, or mutual fund, to attempt to buy $100 million worth of a low-cap stock selling for $2 a share.
In addition, while it is not possible to determine the intent of the buyers or sellers of the most active issues, whether volume reflects positions by long-term institutional traders with no visible exit points or hedge funds that have hedged their position, the most actives nonetheless reflect the cream of the crop of all issues traded. On a given trading day, the 20 most actively traded issues on the NYSE can constitute 30% to 50% of composite exchange volume. It follows that we should follow the volume leaders when creating a gauge of the internal strength or weakness of the market.
Once the volume leaders are recorded, a simple tally of the 20 most active positive issues vs. the negative issues will yield a net number that can be added to a classic advance/decline line. This advance/decline line is called the most actives advance/decline line (MAAD). What sets MAAD apart from other advance/decline indicators is it is selective about what it includes. In the traditional advance/decline line, a small stock that trades only 15,000 shares during a session and a wimpy 100,000 shares on the week, might still be counted as an "up" against, say, XOM that may have traded 40 million shares on the same trading day and over 200 million on the week.
The essence of using MAAD is to determine how the indicator is performing relative to broad market averages. If MAAD is rising along with the market, the indicator is suggesting that smart money likes equities. If the market enters into a consolidation over a period of weeks and MAAD remains resilient and bounces back on recoveries, the indicator is suggesting that smart money is accumulating on weakness. On the other hand, if MAAD falters into market rallies or accelerates into market declines, it's likely the smart money is selling, and maybe in earnest. Key examples of that bias occurred before the 2000 and 2007 major market highs (see "Before the fall," left).
On the critical front, because MAAD is a net advance/decline indicator rather than a money flow indicator, it will not reflect the extent of a move because the indicator is directional. Because the indicator registers a maximum of 20 units up or down in our study, it will not reflect extreme market moves even though the indicator remains maximum negative and moving in the direction of the market trend.
The `87 Crash was an example of this phenomenon. Massive movement in the market was not accompanied by significant deterioration in MAAD, but such action also could be interpreted as a positive divergence in favor of MAAD. Pure money flow, on the other hand, which weights price with a volume input, can measure market extremes, but also has its faults because a big volume issue can skew overall cumulative results. Nonetheless, MAAD has an excellent record over the past three decades of identifying key turning points in the market on both the intermediate and major cycles. "
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