Waiting for Conviction

The pall over the markets that Ukraine has projected makes a conviction of whether to be a bull or bear here rather unclear to me. Basis the S&P the broader 4200 to 4400 area continues to force the market into a tighter and tighter cone. All the crap stocks are down in the 50 % area while the better stocks are down 10 %.

The Big Picture…

At times like this I like to look at my Market Liquidity Index.

At the moment there is another story out there, the Fed Balance sheet which facilitates market liquidity.  The Fed says they are going to sell it off, but we all know that will not happen in any big way until inflation gets really hot. Anything under $ 250 billion of Bond and Mortgage sales per month would not be creditable.

Below is our Liquidity index, which I constructed back in the middle of 2021.  It includes a broad range of assets, stocks, bonds, gold, real estate, Bitcoin, etc. Contracts like:

SPX, DJI, NDX, TLT, IEF, HYG, XAU, VNQ, CRB, and BTC.

For the Index all components are adjusted to a base of 1.0 as of February 24, 2021 which is what I see as the Bubble starting point.  It is designed to show how the aggregate pile is changing.  To me, since the FED pile is not decreasing, Money is just sloshing around to various areas, right now it is in commodities, soon it will roll out of commodities and buy stocks and bonds as interest rates stage a short term decline. 

One other data point that I use as a clue as to panic is the relationship of HYG (junk bonds to Treasury Bonds), and it has stayed positive through this whole stock debacle since November, ie, little panic.

Here is the Liquidity index: What I see for the moment is a measure of resilience, but things could go either way, so there you go, Conviction is important now, should you be a Bull or Bear, or wait and let the market tell you?