Liquidity Crunch warning finally materialised

Fifteen trading days after our Average Liquidity Index (ALI) issued a liquidity crunch warning, the SP-500 finally succumbed into a decent sized correction. The two short-term liquidity indexes, one of which is described in “The HI-LO Breadth Indexes for the SP-500” issued warning even sooner, as can be seen below:

ALI

At a level of -2, we are in a full blown liquidity outflow as can be seen on past occasions. Most up-turns in the ALI at current levels tend to be persistent, which will be a cue that the correction has completed. Having said that, subscribers should be aware that the SP-500 Market Timing System-A  is now armed for the next possible long signal, having exited on Tue Jul 8th for a 6.2% gain:

sp500a

This correction is most likely a healthy temporary pullback and even though our Long Leading US Economic Indicator has clearly rolled over in the last 22 months, sharply so in the last 3, the shorter term leading data point to a while yet before we start concerning ourselves with economic contraction:

ll

About Dwaine Van Vuuren

Dwaine has a Bachelor of Science honors degree and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.