The Cumulative Volume Index uses market momentum to illustrate money flows in and out of the market. It is calculated by subtracting the volume of declining stocks from the volume of advancing stocks and adding this resulting value to a running total.

The Cumulative Volume Index and On Balance Volume (OBV) are quite similar in some respects as both were designed to show if volume is flowing into or out of the market. The difference rests in the Cumulative Volume Index using the actual up- and down-volume for the New York Stock Exchange unlike with the OBV which assumes that all volume is up-volume when the stock closes higher and that all volume is down-volume when the stock closes lower as up-volume and down-volume is not available for individual stocks.

One useful method of interpreting the CVI is to look at the overall trends. The CVI will show if there has been more up-volume or down-volume and how long the current volume trend has been in effect.

Also, look for divergences that develop between the CVI and a market index. If the market index is showing a new high while the CVI fails to react in kind, expect the market to correct itself to confirm the underlying story told by the CVI.

Remember, as the CVI always starts at zero, the numeric value of the CVI is of little importance. What is important is the slope and pattern of the CVI.