“When liquidity falls, markets follow”, this seems to be a pretty good way to describe how and why stocks go down; based on this principle, forecasting a stock market trend correction does not seem to be that hard
Recession Alert has made a very good point on the recent market correction that we are seeing at Wall Street:
“Fifteen trading days after our Average Liquidity Index (ALI) issued a liquidity crunch warning, the SP-500 finally succumbed into a decent sized correction”
This is actually what happened:
If you look at the black curve (the average value of four different liquidity indexes in the stock market), you will notice that, by mid-July, liquidty started crying “correction !” for Wall Street (in the graph you only see the S&P 500, but the result would be the same with Dow Jones, Nasdaq, and so on).
The black line is still going down (as it did in January), so get ready for more losses (or gains, if you were smart/brave enough to short stocks before this started) in the coming days.