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The Liquidity Models Vs The S&P 500 Index Vs VIX Index _ Another Way Of Looking At Market Evolution

The Liquidity Models Vs The S&P 500 Index Vs VIX Index _ Another Way Of Looking At Market Evolution

Blog reader peterspore proposed the application of the VIX Index in the asset price-liquidity model matrix, and indeed, it provides a new dimension in the analyses.

A plunge in liquidity/rise in funding costs is a deadly combination to the health of risk and cyclical assets, and therefore a rise in volatility should provide complementary signals to those that are provided by our set of models.

The combination proposed by peterspore indeed seems superior to our current method of ad hoc adjustments ("calibration") in getting the optimal lead of the models over the assets. We will run peterspore's methodology in parallel with what we do now, and if successful over the course of the month, will be incorporated to the rest of the combinations.

Thanks a lot peterspore.

Robert

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The implications from the models suggest a sideways to slightly higher consolidation for the SPX and other US equity indices (e.g. Russel 2000) into the first week and possibly part of 2nd week of July. Then the equity indices follow-through with a final decline into late July.

We expect a strong rally into August, and then we reassess.

This is a live link. To get an updated chart, click on the link below:

product.datastream.com/dscharting/gatewa...

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.