|
Negative
Volume Index
Description
The
Negative Volume Index (NVI) relates a decrease in
volume to the change in the security's price. When
volume decreases from the previous day, the NVI is
adjusted by the percentage change in the
security's price.
If
(V < (ref(V,-1)) then
NVI = I + (((C - ref(C,-1) / ref(C,-1)))
If (V >= ref(V,-1)) then
NVI = I
Where:
C
= Today's
closing price
ref(C,-1) =
Yesterday's closing price
I =
Yesterday's Negative Volume Index
NVI =
Today's Negative Volume Index
V =
Today's volume
ref(V,-1) =
Yesterday's volume
The
NVI is constructed so it only displays changes on
days when volume decreases from the previous day. Because
falling prices are usually associated with falling
volume, the NVI will usually trend downward.
Interpretation
Interpretation
of the NVI assumes that on days when volume
increases, the crowd-following
"uninformed" investors are in the
market. Conversely,
on days with decreased volume, the "smart
money" is quietly taking positions.
Thus, changes shown in the NVI (remember
that the NVI changes only on lower volume days)
display what the smart money is doing.
Stock
Market Logic, by Norman Fosback, points out
that the odds of a bull market are 95 out of 100
when the NVI of the Dow Industrials is above its
one-year moving average. |
