Q: Rex, re your July 7 2000 column, could you explain what MZM is and why it should stop going down?

A: MZM is just a measure of money supply, which is controlled and reported by the Federal Reserve Banks. A good source of information about the definitions of money supply, and charts on the various measures of money supply (like M1 or MZM), can be found in the Federal Reserve Bank of St. Louis' Monetary Trends monthly newsletter. Go to their website to see all their free publications and to download the Monetary Trends PDF document.

MZM has been rising and will continue to rise, but it is the rate of growth that I am concerned about. The rate of growth, as shown in the chart above, has slowed considerably over the last year. If this rate of growth slows too much, then the Fed could push our economy into a recession. This rate of growth of MZM will only start to rise if the Fed decides to pump more money into the economy.

Rex Takasugi

Q: Have you given any thought to applying indicators to the relative performance line (what used to be called relative strength until Welles Wilder used the misnamed relative strength index)? Once the relative performance is calculated it could be possible to do a P&F chart of said relative performance.

Your relative performance uses the S&P as the denominator. Is it possible to change this to a sector index, e.g. to "relate" MSFT to the technology sector?

While we don't currently have the ability to create P&F charts for anything other than raw datasets, your idea is intriguing and I will think about how we can incorporate it into the site in the future.

There are two ways to chart the relative performance of any two datasets (i.e., stocks, indices, mutual funds):

The SharpCharts Method

1. Pull up a "SharpChart" of the baseline dataset you are interested in.
2. Select "Price Relative" from the dropdown list of "Indicators" located below the chart.
3. Select the "$SPX" that appears next to the "Price Relative" selection and type in the symbol you want for the comparison dataset.

Here's an example that compares Microsoft to Intel:

(Current Chart for Microsoft compared to Intel)

The PerfCharts Method:

1. Go to the PerfCharts Gallery page and scroll to the bottom.
2. Enter the symbols for the datasets you are interested in (up to 5) into the textboxes.
3. Press the "Go" button.
4. When the chart appears, click the symbol of the dataset you want to be the baseline.
5. Use the 3-part slider at the bottom of the chart to adjust the timeframe.

Here's a link to that same example (remember to click on "INTC").

Note: The Price Relative indicator on our SharpCharts divides one dataset by the other. The PerfChart tool subtracts the performance (percent change) of one dataset from the other.

Hope this helps,
Chip Anderson

Q: The Chaikin Money Flow (CMF) for Protein Design Labs, Inc. (PDLI) in May 2000 stands tallest relative to March and July. Yet the price graph peaks in March and in July -- the price is higher than in May! Is this an instance of divergence between price and CMF? If so, what does it indicate?

A: CMF takes a single parameter, the period. By default, the period for the CMF is set to 20, which means that price and volume from only the previous 20 days are used to compute the index. The fact that CMF(20) peaked in May means that price and volume movements for the previous 20 days were very favorable. To make a valid comparison, you need to use a longer period that encompasses both dates. Check out the changes in the CMF on this chart as the period lengthens:

(Current SharpChart for PDLI)

One other thing to notice: even on those longer duration charts, the CMF peaks well before prices do. That is an indication that the run-up at the start of the year was in trouble and hints at the big decline that occurred in March.

Chip Anderson