Following the Crowd on SanDisk

This column was originally published on RealMoney on Oct. 5 at 11:03 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Today, I'm going to look at the chart of SanDisk(SNDK Quote), without those darned distracting secondary indicators. But before doing that, let's briefly consider exactly what it is that these nasty indicators do ... and don't do. These are very, very simplistic explanations, but they'll work for now.

First, Wilder's Relative Strength Index (RSI) is a simple measure of momentum. Within a specific period of time, RSI compares the gains of a stock against the losses of that stock. When the average gains within the period under study (say, 14 days) outweigh the average losses, RSI moves higher. If this imbalance continues, the RSI moves higher still -- the upside momentum is stronger. That's pretty much it for RSI. Would I base a trading decision on RSI? Nope. But I like having some empirical data on momentum. It's also really easy to use when I search for stocks with particular momentum characteristics.

Money flow is a measure of buying and selling pressure within a specific period of time. This pressure is calculated by putting in a volume component. Assuming that the close is dominated by the professionals (while the open is dominated by the amateurs), then the location of the closing price relative to the day's range can be informative. Are the pros buying or selling? High-volume days receive a greater weighting than low-volume days because more volume means more pressure; light volume means minimal interest in the stock. In the final analysis, does the degree of money flow impact my P&L? Nope, but it gives me some kind of idea what the pros are doing relative to what they were doing the last time the underlying stock was moving in the same direction. It's a small piece of data but it's free, so I'll take it. ...