Follow The Money When Investing!
Follow the Money! ... It is advice that you have heard many times, but very few investors seem to do it. The reason may be that they can't get the data or don't know what to look for and/or how to look at the data..
As you will see in today's chart, we make a lot of effort to create chart models that people can understand and use.
One of my favorite daily charts that we post is the one on the Inflowing/Outflowing Liquidity for Options (seen below). This options chart is a reflection of market expectations 30 days out and the Net Inflowing/Outflowing Liquidity is a great predictor of what to expect from the stock market.
On today's chart, focus on the rose colored background graph area first. This chart represents the net amount of Inflowing/Outflowing Liquidity going into or out of 30 day Options.
Here is how to read the chart for Inflowing Liquidity:
1. If the red bars are above the thin black horizontal line and below the green horizontal line, then the Inflowing Liquidity is a lesser positive.
2. If the red bars are between the green horizontal line and the red horizontal line, the amount of Inflowing Liquidity is a straight positive. Above the thin red horizontal line is a strong positive.
Here is how to read the chart for Outflowing Liquidity:
3. For Outflowing Liquidity: between the black horizontal line and the thicker maroon line is a lesser negative level, and any below the maroon line is a stronger negative level.
Now, let's look at the top graph on the chart:
On the very top of the chart is a Timing Indicator for the Inflowing/Outflowing Liquidity. If the thick red line has moved down (negative) and then moves up afterwards and it goes over the thin red/blue lines, then that is a notification that the trend is about to change. If that thick red line goes above the "blue horizontal" line at the same time (or after) then it is a new up signal.
There are times when the thick red line will go above or below the blue horizontal line, but the thin red/blue lines will still be trending in the opposite direction. That is a "warning" condition of a possible change that needs the red/blue trend lines to cross over and reverse direction for a valid signal change.
(If you are a paid subscriber, you can see this chart updated every day in Section 1 as Chart #1.)
We hope that this kind of information helps you see the importance of "following the money" when investing. Have a great weekend, we will see you on Monday.