Overview
The Herrick Payoff Index is designed to show the amount of money
flowing into or out of a futures contract. The Index uses open interest
during its calculations, therefore, the security being analyzed must
contain open interest
The Herrick Payoff Index was developed by John Herrick.
Interpretation
When the Herrick Payoff Index is above zero, it shows that money is
flowing into the futures contract (which is bullish). When the Index is
below zero, it shows that money is flowing out of the futures contract
(which is bearish).
The interpretation of the Herrick Payoff Index involves looking for
divergences between the Index and prices. The trend lines identify a
bearish divergence where prices were making new highs while the Payoff
Index was failing to make new highs. As is typical with divergences,
prices corrected to confirm the indicator.
