Liquidity Crunch Warning Finally Materialised
Dwaine van Vuuren | Aug 03, 2014 01:51AM ET
Fifteen trading days after our Average Liquidity Index (ALI) issued a liquidity crunch warning, the S&P 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 S&P 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:
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