See Price Direction at a Glance

Developed by CallWriter.com, the MADI is a signal expressed in number form that indicates where the stock's current price is in relation to its 20-day and 50-day moving averages. For example, a stock price that is above both averages likely is rising, and one that is below both averages likely is falling.

The MADI is used as part of a quick visual scan of the list that allows us to first pick out stocks that appear to be showing strength by being above

The MADI presents two numbers, separated by a colon, for each stock on the list. Either number can be positive (green) or negative (red with a - sign). The left-hand number is the 20-day MADI and the right-hand number is the 50-day MADI. An example of the MADI would be:

In the above example, we know the 20-day moving average (20 MA) has to be below the 50-day moving average (50 MA), There is no other way the stock price could be above the 20 MA and below the 50 MA. Below I have put a series of charts designed to help you visualize what MADI values mean on the chart.

The MADI values are not conclusive, of course. They don't tell you whether the stock price is rising (meaning the MADI recently looked better) or falling (MADI recently was even worse). But if we have a sense of what the market is doing, then we have a clue. Here are some very helpful pointers:

Stock/Index	Relationship of 20 MA to 50 MA
Flattish	The 20 MA usually is above the 50 MA, though they can be very close, sometimes coinciding.
Uptrending	The 20 MA is above the 50 MA.
Downtrending	The 20 MA is below the 50 MA.

MADI Values

Again, the MADI does not express the 20- and 50-day moving averages themselves, only the stock's price in relation to those moving averages. Generally, every MADI point equates to 2%. Thus a MADI of 01 (positive) tells us the stock price is at least 2% above the moving average, but less than 4% (which would move the MADI value to 02)

Thus there is a bit of a fudge factor in there. We refer to each point of the MADI value as a "klick" for convenience.

Example: A value of 05 indicates that the current price is at least 10% higher than the moving average but less than 12% higher. And -05 indicates that it's at least 10% lower but less than 12% lower.

Example: A MADI value of 00 means that the current price is within 2% of the moving average. Price essentially is right at   that moving average (testing it) and suggests sideways price movement. Price could be virtually right on the moving average or slightly above or below it.

This does not mean the price has remained flat during the entire measurement period, and it could in fact have moved up or down during the period. The stock could be rising or falling at the time and only momentarily at the moving average. Thus the “00” value means only that the current price is approximately right at the moving average.

The MADI does not tell us the direction in which the stock is moving: up, down or flat. However, the combination of the two can present a mental image of the stock's chart.

Visualizing the MADI

Here are some quick thumbnail sketches that will help you to visualize the MADI numbers. The 20-day and 50-day simple moving averages are referred to as the 20 MA and 50 MA.

CHART:     Red line - 20 day                 Blue line - 50 day                   Green line - 200 day
	The 00:00 value means that the stock or index price is approximately right at both the 20 and 50 MA - testing both. The two averages may have coincided, or be just slightly apart. This means the 20 MA has either risen or fallen to the 50 MA. If the 20 MA crosses above the 50 MA, the stock may provide an entry signal.
	The 00:-01 value tells us the 20 MA is a bit below the 50 MA, but not whether the 20 MA is rising or falling. The 00 value means price is testing the 20 MA. If the 20 MA crosses above the 50 MA, the stock may provide an entry signal.
	The 00:03 value means the stock/index is above the 50 MA but testing the 20 MA - which could happen only if the 20- MA is higher than the 50. Without checking the chart, we don't know if the stock is rising or falling.
	The -02:00 value means the stock/index is below the 20 MA but testing the 50 MA, which could happen only if the 20 MA is above the 50. This configuration (20 MADI of -01, -02, -03 or -04 and a 50 MADI of 00) indicates the stock has broken below the 20 MA and is testing the 50 MA - this could be an upside reversal.
	The -02:-01 value means the stock/index is below the 20 MA and also below the 50 MA. This may be a hard test of the 50 MA or a sign the stock has broken down. The stock may find support at the 50 MA and recover, but until then, hands off.
	The -02:-04 value means the stock/index is below both the 20 and 50 MA and that the 20 MA has crossed below the 50 MA. Unless you are looking for a bearish trade, this MADI configuration is unusable. Even if you see a bright spot, there is something better out there.
	A 03:05 value indicates the stock is getting somewhat extended and probably getting toppy - close to the range top. This is potentially bearish since the stock may be approaching resistance. I look for less toppy trades.
	A high value such as 07:09 means the stock is extremely overextended. This is bearish. I ignore these, unless I am looking for a bearish play on the stock - not a covered call.
	A large negative value such as -06:-08 means the stock is extremely overextended to the downside. But this may not be bad. This MADI configuration is common in bearish markets as a down-leg of the trading range gets to the range bottom. Get ready to write the up-leg and hit a home run.

Here is more information on how to use the MADI.