Sunday, March 24, 2013

Markets Are Promised Higher Highs Despite Possible Correction

The Ratio Adjusted Summation Index is the best tool that I have found for measuring the amount of liquidity in the market. When there is a great deal of liquidity, that means prices go up, no matter what the underlying fundamental state the economy is in. The Ratio Adjusted Summation Index (shown below) is at incredibly high levels due to the effects of QE3. I have circled an odd pattern behavior on the chart where the $NYSI forms nearly a straight line; this is clearly the effects of the Fed pumping money into the markets.

The Ratio Adjusted Summation Index is well above the +500 threshold, meaning the long-term outlook of the market is very bullish. When the market does enter a correction phase (I am noticing some big warnings signs in the charts I look at), this indicator is guaranteeing higher highs after that correction. However, if QE3 ends, I would not trust this indicator. This indicator correctly forecasted the higher highs the NYSE made in December, after a nasty November. This indicator has been spot-on since the uptrend of June 4th. In summary, this indicator is saying that in the next few months the markets will be higher, but I would avoid its bullish message if QE3 ends.