EquitySurge shows what the liquidity backdrop looks like for the USA stock market.
Liquidity means money flow. Is money flowing into the stock market, or out? That in a nutshell is what makes stocks go up or down. The earnings and “fundamentals” that you read and hear about in the popular press are NOT what make stocks go up or down; it’s money flow: How much money is flowing into or out of the stock market. That’s what you want to know.
This service is for equity investors/traders who want to see if the overall liquidity situation in the stock market is supportive of higher prices or not.
In the case of a Green Up arrow on the indicator for instance, that would mean liquidity is supportive of higher stock prices, and the investor/trader could then trade their favorite market or deploy their equity allocation strategy.
The indicator shows the liquidity backdrop on the daily time frame and higher, not intraday, so it’s designed to give the user a reliable look at how supportive/not supportive the overall liquidity backdrop is for stocks.
We use RRG® graphs to show the relative strength and momentum of a group of liquidity benchmarks versus broad-based USA stock indexes. When the liquidity benchmarks show strong relative strength and momentum they appear in the green Leading quadrant. This means liquidity conditions are favorable for establishing and holding long equity positions. As the relative momentum of the liquidity benchmarks fades, they start moving into the yellow Weakening quadrant. If relative strength also then fades, they move into the red Lagging quadrant, which means that liquidity conditions are now unfavorable for holding long equity positions, and stocks should be sold or even shorted. Finally, when momentum starts to pick up again, meaning liquidity conditions are improving, they shift back into the blue Improving quadrant.
The liquidity benchmarks we use are the VIX Index, the Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options, the Hang Seng Index in Hong Kong, an excellent benchmark for global liquidity conditions, HYG, a high yield bond ETF, TLT, a 20+ Year US Treasury Bond ETF, and the commodity Copper, an excellent barometer of global industrial economic activity. Each of these provides deep insight into current liquidity conditions in the stock market.
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The terms Relative Rotation Graph and RRG are registered trademarks of RRG Research.