Suppose an oil-service company's stock starts the day at $29 a share, trades up and down a bit, and ends the day right where it started, at $29. That looks pretty innocuous. But depending on how many shares were sold on the upticks versus the downticks, that stock actually could have lost hundreds of millions of dollars that day on a cumulative basis. That indicator, called money flow, determines the buying/selling interest in a stock, and it is the prime way in which stock-market research firm Birinyi Associates analyzes stocks. It calculates money flow by taking the weighted dollar amount of the shares bought on upticks less the amount sold on downticks. It's done on a cumulative basis, usually a six-month period. "In money flow analysis you get additional insights you really wouldn't get otherwise if you were just looking at price movement," says Birinyi market analyst Lisa Kammert. Birinyi's president, Laszlo Birinyi, is the global trading strategist for Deutsche Bank Securities Inc. "Strong accumulation, or money flowing into a stock, highlights the sustainability of a stock rally, and vice versa. Outflows are called 'distribution' and suggest that a stock is becoming vulnerable," Kammert says. Oilfield services definitely are rallying. While the sector could change direction in the near future, strong money flows in these stocks cause Kammert to remain very bullish on this industry segment. Complementing the firm's money flow analysis is the so-called "overbought/oversold" indicator, which helps to assess the buy/sell timing and relative attractiveness of a stock, Kammert said. Oversold stocks are 10% or more below their 50-day moving average, and overbought stocks are 10% or more above. Among service stocks, most are overbought, except for Core Laboratories. The integrated oil sector also is in a rally right now, but only two stocks have been strongly accumulated during the past six months: Occidental Petroleum Corp. and Phillips Petroleum Co. Oxy is especially interesting because there is a divergence between the accumulation of the stock, which has steadily grown, and the stock price, which had retreated. "It's suggesting that [the stock price] should come back up as long as that accumulation is going along steadily." While Phillips and Oxy have strong momentum, Oxy is less overbought and therefore the more attractive, she says. Among independent producers, Anadarko Petroleum Corp. and Apache Corp. have the strongest money flows. "Stock prices pulled back some during the summer, but strong money flow accumulations did ultimately result in the stocks coming back up. So you saw good accumulation for six months and often good buying on weakness, which is a very positive sign, in our work." -Jodi Wetuski
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