Cumulative Volume Index (CVI)
Definition
The Cumulative Volume Index (CVI) is a running total of the difference between the number of stocks advancing and number of stocks declining. Think of it like a running scoreboard, tracking the entire market and its outperformance or underperformance, on a cumulative basis.
Calculations
The Cumulative Volume Index is calculated as follows:
CVI = Previous Period CVI + (Advancing stocks - Declining stocks)
Definitions:
Advancing stocks - The number of advancing stocks in the current period
Declining stocks - The number of declining stocks in the current period
Takeaways
It’s good to use the Cumulative Volume Index with other indicators and technical analysis tools, rather than on its own. The CVI is not comprehensive enough to paint a clear trading or investing signal. Instead it is a broad market tool to measure breadth.
The CVI helps to confirm whether or not market capital is moving in or out of an index. If the CVI trends lower, it is often assumed that a trend has lost some of its momentum and a possible reversal can be seen in the future. If the CVI is trending higher, however, this could signal the opposite - that a trend is gaining momentum. This could be a signal for traders to start making trades in congruence with the trend.
What to look for
The CVI can be used to follow the broad markets and its overall strength throughout a period of time. While the CVI is helpful for gauging market breadth, it can also be used to examine the underlying trend to determine if more stocks are advancing than declining over time.
Summary
The Cumulative Volume Index is an indicator best known for tracking price trends in and outside of the stock market. With the addition of other indicators, the analyzed pattern can help determine when a trend is weakening or generally trending lower, as well as when it is strengthening or generally moving higher. It’s important to remember that the number isn’t as important here, rather the pattern and general trend analyzed by the CVI.