What is Liquidity and Why is it Important?

Liquidity is a measure of how much money is flowing into or out of the stock market. The stock market needs lots of liquidity (money) flowing in for prices to rise. The definition of a Bull Market is prices going up because money is flowing into the market and investors are buying stocks, mutual funds and ETF’s.

Conversely, when the flow of money (liquidity) into the stock market slows or stops, prices have a difficult time staying up because there is not as much money flowing in to support prices, and the longer this goes on the more likely a correction in stock prices becomes.

If you can accurately measure the level of liquidity either flowing into or out of the stock market, then you can have a very good idea about when to buy or when to sell.

EquitySurge™ is a proprietary measure of liquidity. When EquitySurge™ generates a Buy Signal this means that liquidity (money) is flowing into the stock market, or soon will be, and liquidity conditions are becoming supportive of higher stock prices. As long as EquitySurge™ then maintains the Buy Signal, liquidity conditions remain supportive of the market and this indicates that money is flowing into stocks, mutual funds and ETF’s and prices should continue to rise.

When the flow of money into the stock market begins to slow or even stops, EquitySurge™ will show this by generating a Sell Signal. This means that the fuel for higher stock prices, money, is no longer flowing as well, or has even stopped, and it’s time to consider selling stocks, establishing a hedge, or even going short the stock market.

If you understand that the main underlying reason stocks go up is liquidity (money) flowing into the market, then you just need a reliable measure of liquidity to help tell you when liquidity conditions are good for buying stocks, and when they are not.