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Introducing The Macroliquidity Ratio Indicator

We have a new black box.

The Composite Liquidity Indicator edged to a new high this week, just barely above the range of the past 6 months. Even with that 6 month pause, the trend is in much the same longer term path it has been on since 2012. It still has a small margin above its 39 week moving average, and is more than double that spread above its 28 week moving average.Perhaps the most amazing visual is the degree to which the S&P 500 correlates with this line. Strikingly, each time since 2013 that the SPX has dropped to the 39 week moving average of macroliquidity, the decline has reversed. Since 2012, each time the SPX has hit the Macroliquidity line, the rally has stalled. Pure coincidence, or are we on to something?

Liquidity moves markets!

Follow the money. Find the profits! 
Macroliquidity Composite - Click to enlarge

Macroliquidity Composite – Click to enlarge

Since 2012 the ratio of the Macroliquidity Composite to the S&P 500 has ranged from approximately 1150 to 1250. When that range has been exceeded, it was either a short term buy when the ratio was at or above 1250 or a short term sell when it was around 1150.  I have created a chart to illustrate this.  Even though I do not know why the correlation has been as strong as it has been, in theory it should work, and in practice it has been working. As long as it continues to, I’ll keep it as another arrow in the quiver. I don’t expect it to be a magic bullet or permanent black box. It might stop working tomorrow, but for now, it is at least interesting.

Macroliquidity Ratio- Click to enlarge

Macroliquidity Ratio- Click to enlarge

Click to view chart.

I will update this indicator weekly in the Macro Liquidity Pro reports.

Fed Money and Liquidity Pro subscribers (Professional Edition), click here to download complete report in pdf format.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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