Steven Saville: Market Liquidity Trends and Investment Approach
We have never come across a truly satisfactory way of quantifying overall financial market liquidity. However, major changes in market liquidity trends can often be inferred from price action. Recent movements in several markets suggest that a significant downward reversal in liquidity occurred during the first half of October.
The most important market yet to show evidence of declining liquidity is the US stock market, as represented by the SPX. This market continues to be supported to a large extent by passive money flows, which has so far helped maintain its resilience.
Editor’s Note: This article was originally published at tsi-blogletter, reflecting an analytical perspective rather than one focused on selling newsletter subscriptions. My investment strategy is ‘top down’: I begin by determining broad market trends and then use a combination of fundamental and technical analysis to identify individual stocks that are positioned to benefit from these overarching trends.
In my experience, it is exponentially easier to select a winning stock within a market or sector that is in the midst of a long-term bullish trend, rather than picking stocks against a bearish market backdrop. Fortunately, there is always a bull market somewhere in the world.
I’ve lived in Asia (Hong Kong, China, and Malaysia) since 1995, and I currently reside in Malaysian Borneo.
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