Liquidity Crunch warning finally materialised

By RecessionALERT on August 1, 2014 in Reflections

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:

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:

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:

About RecessionALERT

Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics 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.

View all posts by RecessionALERT →

Market Update

← SP-500 Liquidity Crunch Warning

Once in a year opportunity →

IMPORTANT DISCLAIMERS: Although many of our models rely heavily on back-testing, optimisation and probability methods, please note that past performance is NO GUARANTEE for future returns. No system devised by man can predict the future, let alone the future of the markets and economies. What we have are sets of mathematical models that use historical data and varying theories to pinpoint places in time when the STATISTICAL LIKELYHOOD of calling the start and end to recessions is the greatest. In the midst of all the best mathematical models, you can have geo-political events, wars, terrorist attacks, natural disasters and even nuclear accidents that tip everything upside down. This is always a risk factor you need to factor in on any recession call no matter how confident you are in a signal. The SuperIndexes are created through mathematical and statistical optimisation techniques that best fit the historical NBER data. There is no guarantee that out-of-sample performance will match that of prior in-sample performance.