Recession Warning Model [BackQuant]Recession Warning Model
Overview
The Recession Warning Model (RWM) is a Pine Script® indicator designed to estimate the probability of an economic recession by integrating multiple macroeconomic, market sentiment, and labor market indicators. It combines over a dozen data series into a transparent, adaptive, and actionable tool for traders, portfolio managers, and researchers. The model provides customizable complexity levels, display modes, and data processing options to accommodate various analytical requirements while ensuring robustness through dynamic weighting and regime-aware adjustments.
Purpose
The RWM fulfills the need for a concise yet comprehensive tool to monitor recession risk. Unlike approaches relying on a single metric, such as yield-curve inversion, or extensive economic reports, it consolidates multiple data sources into a single probability output. The model identifies active indicators, their confidence levels, and the current economic regime, enabling users to anticipate downturns and adjust strategies accordingly.
Core Features
- Indicator Families : Incorporates 13 indicators across five categories: Yield, Labor, Sentiment, Production, and Financial Stress.
- Dynamic Weighting : Adjusts indicator weights based on recent predictive accuracy, constrained within user-defined boundaries.
- Leading and Coincident Split : Separates early-warning (leading) and confirmatory (coincident) signals, with adjustable weighting (default 60/40 mix).
- Economic Regime Sensitivity : Modulates output sensitivity based on market conditions (Expansion, Late-Cycle, Stress, Crisis), using a composite of VIX, yield-curve, financial conditions, and credit spreads.
- Display Options : Supports four modes—Probability (0-100%), Binary (four risk bins), Lead/Coincident, and Ensemble (blended probability).
- Confidence Intervals : Reflects model stability, widening during high volatility or conflicting signals.
- Alerts : Configurable thresholds (Watch, Caution, Warning, Alert) with persistence filters to minimize false signals.
- Data Export : Enables CSV output for probabilities, signals, and regimes, facilitating external analysis in Python or R.
Model Complexity Levels
Users can select from four tiers to balance simplicity and depth:
1. Essential : Focuses on three core indicators—yield-curve spread, jobless claims, and unemployment change—for minimalistic monitoring.
2. Standard : Expands to nine indicators, adding consumer confidence, PMI, VIX, S&P 500 trend, money supply vs. GDP, and the Sahm Rule.
3. Professional : Includes all 13 indicators, incorporating financial conditions, credit spreads, JOLTS vacancies, and wage growth.
4. Research : Unlocks all indicators plus experimental settings for advanced users.
Key Indicators
Below is a summary of the 13 indicators, their data sources, and economic significance:
- Yield-Curve Spread : Difference between 10-year and 3-month Treasury yields. Negative spreads signal banking sector stress.
- Jobless Claims : Four-week moving average of unemployment claims. Sustained increases indicate rising layoffs.
- Unemployment Change : Three-month change in unemployment rate. Sharp rises often precede recessions.
- Sahm Rule : Triggers when unemployment rises 0.5% above its 12-month low, a reliable recession indicator.
- Consumer Confidence : University of Michigan survey. Declines reflect household pessimism, impacting spending.
- PMI : Purchasing Managers’ Index. Values below 50 indicate manufacturing contraction.
- VIX : CBOE Volatility Index. Elevated levels suggest market anticipation of economic distress.
- S&P 500 Growth : Weekly moving average trend. Declines reduce wealth effects, curbing consumption.
- M2 + GDP Trend : Monitors money supply and real GDP. Simultaneous declines signal credit contraction.
- NFCI : Chicago Fed’s National Financial Conditions Index. Positive values indicate tighter conditions.
- Credit Spreads : Proxy for corporate bond spreads using 10-year vs. 2-year Treasury yields. Widening spreads reflect stress.
- JOLTS Vacancies : Job openings data. Significant drops precede hiring slowdowns.
- Wage Growth : Year-over-year change in average hourly earnings. Late-cycle spikes often signal economic overheating.
Data Processing
- Rate of Change (ROC) : Optionally applied to capture momentum in data series (default: 21-bar period).
- Z-Score Normalization : Standardizes indicators to a common scale (default: 252-bar lookback).
- Smoothing : Applies a short moving average to final signals (default: 5-bar period) to reduce noise.
- Binary Signals : Generated for each indicator (e.g., yield-curve inverted or PMI below 50) based on thresholds or Z-score deviations.
Probability Calculation
1. Each indicator’s binary signal is weighted according to user settings or dynamic performance.
2. Weights are normalized to sum to 100% across active indicators.
3. Leading and coincident signals are aggregated separately (if split mode is enabled) and combined using the specified mix.
4. The probability is adjusted by a regime multiplier, amplifying risk during Stress or Crisis regimes.
5. Optional smoothing ensures stable outputs.
Display and Visualization
- Probability Mode : Plots a continuous 0-100% recession probability with color gradients and confidence bands.
- Binary Mode : Categorizes risk into four levels (Minimal, Watch, Caution, Alert) for simplified dashboards.
- Lead/Coincident Mode : Displays leading and coincident probabilities separately to track signal divergence.
- Ensemble Mode : Averages traditional and split probabilities for a balanced view.
- Regime Background : Color-coded overlays (green for Expansion, orange for Late-Cycle, amber for Stress, red for Crisis).
- Analytics Table : Optional dashboard showing probability, confidence, regime, and top indicator statuses.
Practical Applications
- Asset Allocation : Adjust equity or bond exposures based on sustained probability increases.
- Risk Management : Hedge portfolios with VIX futures or options during regime shifts to Stress or Crisis.
- Sector Rotation : Shift toward defensive sectors when coincident signals rise above 50%.
- Trading Filters : Disable short-term strategies during high-risk regimes.
- Event Timing : Scale positions ahead of high-impact data releases when probability and VIX are elevated.
Configuration Guidelines
- Enable ROC and Z-score for consistent indicator comparison unless raw data is preferred.
- Use dynamic weighting with at least one economic cycle of data for optimal performance.
- Monitor stress composite scores above 80 alongside probabilities above 70 for critical risk signals.
- Adjust adaptation speed (default: 0.1) to 0.2 during Crisis regimes for faster indicator prioritization.
- Combine RWM with complementary tools (e.g., liquidity metrics) for intraday or short-term trading.
Limitations
- Macro indicators lag intraday market moves, making RWM better suited for strategic rather than tactical trading.
- Historical data availability may constrain dynamic weighting on shorter timeframes.
- Model accuracy depends on the quality and timeliness of economic data feeds.
Final Note
The Recession Warning Model provides a disciplined framework for monitoring economic downturn risks. By integrating diverse indicators with transparent weighting and regime-aware adjustments, it empowers users to make informed decisions in portfolio management, risk hedging, or macroeconomic research. Regular review of model outputs alongside market-specific tools ensures its effective application across varying market conditions.
Fed
FEDFUNDS Rate Divergence Oscillator [BackQuant]FEDFUNDS Rate Divergence Oscillator
1. Concept and Rationale
The United States Federal Funds Rate is the anchor around which global dollar liquidity and risk-free yield expectations revolve. When the Fed hikes, borrowing costs rise, liquidity tightens and most risk assets encounter head-winds. When it cuts, liquidity expands, speculative appetite often recovers. Bitcoin, a 24-hour permissionless asset sometimes described as “digital gold with venture-capital-like convexity,” is particularly sensitive to macro-liquidity swings.
The FED Divergence Oscillator quantifies the behavioural gap between short-term monetary policy (proxied by the effective Fed Funds Rate) and Bitcoin’s own percentage price change. By converting each series into identical rate-of-change units, subtracting them, then optionally smoothing the result, the script produces a single bounded-yet-dynamic line that tells you, at a glance, whether Bitcoin is outperforming or underperforming the policy backdrop—and by how much.
2. Data Pipeline
• Fed Funds Rate – Pulled directly from the FRED database via the ticker “FRED:FEDFUNDS,” sampled at daily frequency to synchronise with crypto closes.
• Bitcoin Price – By default the script forces a daily timeframe so that both series share time alignment, although you can disable that and plot the oscillator on intraday charts if you prefer.
• User Source Flexibility – The BTC series is not hard-wired; you can select any exchange-specific symbol or even swap BTC for another crypto or risk asset whose interaction with the Fed rate you wish to study.
3. Math under the Hood
(1) Rate of Change (ROC) – Both the Fed rate and BTC close are converted to percent return over a user-chosen lookback (default 30 bars). This means a cut from 5.25 percent to 5.00 percent feeds in as –4.76 percent, while a climb from 25 000 to 30 000 USD in BTC over the same window converts to +20 percent.
(2) Divergence Construction – The script subtracts the Fed ROC from the BTC ROC. Positive values show BTC appreciating faster than policy is tightening (or falling slower than the rate is cutting); negative values show the opposite.
(3) Optional Smoothing – Macro series are noisy. Toggle “Apply Smoothing” to calm the line with your preferred moving-average flavour: SMA, EMA, DEMA, TEMA, RMA, WMA or Hull. The default EMA-25 removes day-to-day whips while keeping turning points alive.
(4) Dynamic Colour Mapping – Rather than using a single hue, the oscillator line employs a gradient where deep greens represent strong bullish divergence and dark reds flag sharp bearish divergence. This heat-map approach lets you gauge intensity without squinting at numbers.
(5) Threshold Grid – Five horizontal guides create a structured regime map:
• Lower Extreme (–50 pct) and Upper Extreme (+50 pct) identify panic capitulations and euphoria blow-offs.
• Oversold (–20 pct) and Overbought (+20 pct) act as early warning alarms.
• Zero Line demarcates neutral alignment.
4. Chart Furniture and User Interface
• Oscillator fill with a secondary DEMA-30 “shader” offers depth perception: fat ribbons often precede high-volatility macro shifts.
• Optional bar-colouring paints candles green when the oscillator is above zero and red below, handy for visual correlation.
• Background tints when the line breaches extreme zones, making macro inflection weeks pop out in the replay bar.
• Everything—line width, thresholds, colours—can be customised so the indicator blends into any template.
5. Interpretation Guide
Macro Liquidity Pulse
• When the oscillator spends weeks above +20 while the Fed is still raising rates, Bitcoin is signalling liquidity tolerance or an anticipatory pivot view. That condition often marks the embryonic phase of major bull cycles (e.g., March 2020 rebound).
• Sustained prints below –20 while the Fed is already dovish indicate risk aversion or idiosyncratic crypto stress—think exchange scandals or broad flight to safety.
Regime Transition Signals
• Bullish cross through zero after a long sub-zero stint shows Bitcoin regaining upward escape velocity versus policy.
• Bearish cross under zero during a hiking cycle tells you monetary tightening has finally started to bite.
Momentum Exhaustion and Mean-Reversion
• Touches of +50 (or –50) come rarely; they are statistically stretched events. Fade strategies either taking profits or hedging have historically enjoyed positive expectancy.
• Inside-bar candlestick patterns or lower-timeframe bearish engulfings simultaneously with an extreme overbought print make high-probability short scalp setups, especially near weekly resistance. The same logic mirrors for oversold.
Pair Trading / Relative Value
• Combine the oscillator with spreads like BTC versus Nasdaq 100. When both the FED Divergence oscillator and the BTC–NDQ relative-strength line roll south together, the cross-asset confirmation amplifies conviction in a mean-reversion short.
• Swap BTC for miners, altcoins or high-beta equities to test who is the divergence leader.
Event-Driven Tactics
• FOMC days: plot the oscillator on an hourly chart (disable ‘Force Daily TF’). Watch for micro-structural spikes that resolve in the first hour after the statement; rapid flips across zero can front-run post-FOMC swings.
• CPI and NFP prints: extremes reached into the release often mean positioning is one-sided. A reversion toward neutral in the first 24 hours is common.
6. Alerts Suite
Pre-bundled conditions let you automate workflows:
• Bullish / Bearish zero crosses – queue spot or futures entries.
• Standard OB / OS – notify for first contact with actionable zones.
• Extreme OB / OS – prime time to review hedges, take profits or build contrarian swing positions.
7. Parameter Playground
• Shorten ROC Lookback to 14 for tactical traders; lengthen to 90 for macro investors.
• Raise extreme thresholds (for example ±80) when plotting on altcoins that exhibit higher volatility than BTC.
• Try HMA smoothing for responsive yet smooth curves on intraday charts.
• Colour-blind users can easily swap bull and bear palette selections for preferred contrasts.
8. Limitations and Best Practices
• The Fed Funds series is step-wise; it only changes on meeting days. Rapid BTC oscillations in between may dominate the calculation. Keep that perspective when interpreting very high-frequency signals.
• Divergence does not equal causation. Crypto-native catalysts (ETF approvals, hack headlines) can overwhelm macro links temporarily.
• Use in conjunction with classical confirmation tools—order-flow footprints, market-profile ledges, or simple price action to avoid “pure-indicator” traps.
9. Final Thoughts
The FEDFUNDS Rate Divergence Oscillator distills an entire macro narrative monetary policy versus risk sentiment into a single colourful heartbeat. It will not magically predict every pivot, yet it excels at framing market context, spotting stretches and timing regime changes. Treat it as a strategic compass rather than a tactical sniper scope, combine it with sound risk management and multi-factor confirmation, and you will possess a robust edge anchored in the world’s most influential interest-rate benchmark.
Trade consciously, stay adaptive, and let the policy-price tension guide your roadmap.
My-Indicator - Global Liquidity & Money Supply M2 + Time OffsetThis script is designed to visualize a global liquidity and money supply index by combining data from various regions and, optionally, central bank activity. Visualizing this data on a chart allows you to see how central banks are intervening in the financial system and how the total amount of money in the economy is changing. Let’s take a look at how it works:
Central Bank Liquidity
Shows the actions of central banks (e.g. FED, ECB) providing short-term cash to commercial banks. If you see spikes or a steady increase in these indicators, it may suggest that liquidity is being increased through intervention, which often stimulates the market.
Money Supply
M2 money supply is a monetary aggregate that includes M1 (cash and current deposits) plus savings deposits, small term deposits, and other financial instruments that, while not as liquid as M1, can be quickly converted into cash. As a result, M2 provides a broader picture of the available money in the economy, which is useful for analyzing market conditions and potential economic trends.
How does it help investors?
It allows you to quickly see when central banks are injecting additional liquidity, which could signal higher prices.
It allows you to see trends in the money supply, which informs potential changes in inflation and the economic cycle.
Combining both sets of data provides a more complete picture – both in the short and long term – which makes it easier to predict upcoming price movements.
This allows investors to better respond to changes in central bank policy and broader monetary trends, increasing their chances of making better investment decisions.
Data Collection
The script retrieves money supply data for key markets such as the USA (USM2), Europe (EUM2), China (CNM2), and Japan (JPM2). It also offers additional money supply series for other markets—like Canada (CAM2), Great Britain (GBM2), Russia (RUM2), Brazil (BRM2), Mexico (MXM2), and New Zealand (NZM2)—with extra options (e.g., Australia, India, Korea, Indonesia, Malaysia, Sweden) disabled by default. Moreover, you can enable data for central bank liquidity (such as FED, RRP, TGA, ECB, PBC, BOJ, and other central banks), which are also disabled by default.
Index Calculation
The indicator calculates the index by adding together all the enabled money supply series (and the central bank data if activated) and then scales the sum by dividing it by 1,000,000,000,000 (one trillion). This scaling makes the resulting values more manageable and easier to read on the chart.
Time Offset Feature
A key feature of the script is the time offset. With the input parameter "Time Offset (days)", the user can shift the plotted index line by a specific number of days. The script converts the given offset in days into a number of bars based on the current chart's timeframe. This allows you to adjust for the delay between liquidity changes and their effect on asset prices.
Overall, the indicator plots a line on your chart representing the global liquidity and money supply index, allowing you to visually monitor trends and better understand how liquidity and central bank actions may influence market movements.
What makes this script different from others?
Every supported market—both major regions (USA, Eurozone, China, Japan, etc.) and additional ones—is available. You can toggle each series on or off, so you can view only Money Supply data, only Central Bank Liquidity, or any custom combination.
Separated Data Groups. Inputs are organized into clear groups (“Money Supply”, “Other Money Supply”, “Central Bank Liquidity”), making it easy to focus on just the data you need without clutter.
True Day‑Based Offset. This script converts your chosen “Time Offset (days)” into actual days regardless of timeframe. Whether you’re on a 5‑minute or daily chart, the index is always shifted by exactly the number of days you specify.
Liquidity Stress Index SOFR - IORBLiquidity Stress Index (SOFR - IORB)
This indicator tracks the spread between the Secured Overnight Financing Rate (SOFR) and the Interest on Reserve Balances (IORB) set by the Federal Reserve.
A persistently positive spread may indicate funding stress or liquidity shortages in the repo market, as it suggests overnight lending rates exceed the risk-free rate banks earn at the Fed.
Useful for monitoring monetary policy transmission or market/liquidity stress.
Interest Rate Trading (Manually Added Rate Decisions) [TANHEF]Interest Rate Trading: How Interest Rates Can Guide Your Next Move.
How were interest rate decisions added?
All interest rate decision dates were manually retrieved from the 'Record of Policy Actions' and 'Minutes of Actions' on the Federal Reserve's website due to inconsistent dates from other sources. These were manually added as Pine Script currently only identifies rate changes, not pauses.
█ Simple Explanation:
This script is designed for analyzing and backtesting trading strategies based on U.S. interest rate decisions which occur during Federal Open Market Committee (FOMC) meetings, to make trading decisions. No trading strategy is perfect, and it's important to understand that expectations won't always play out. The script leverages historical interest rate changes, including increases, decreases, and pauses, across multiple economic time periods from 1971 to the present. The tool integrates two key data sources for interest rates—USINTR and FEDFUNDS—to support decision-making around rate-based trades. The focus is on identifying opportunities and tracking trades driven by interest rate movements.
█ Interest Rate Decision Sources:
As noted above, each decision date has been manually added from the 'Record of Policy Actions' and 'Minutes of Actions' documents on the Federal Reserve's website. This includes +50 years of more than 600 rate decisions.
█ Interest Rate Data Sources:
USINTR: Reflects broader U.S. interest rate trends, including Treasury yields and various benchmarks. This is the preferred option as it corresponds well to the rate decision dates.
FEDFUNDS: Tracks the Federal Funds Rate, which is a more specific rate targeted by the Federal Reserve. This does not change on the exact same days as the rate decisions that occur at FOMC meetings.
█ Trade Criteria:
A variety of trading conditions are predefined to suit different trading strategies. These conditions include:
Increase/Decrease: Standard rate increases or decreases.
Double/Triple Increase/Decrease: A series of consecutive changes.
Aggressive Increase/Decrease: Rate changes that exceed recent movements.
Pause: Identification of no changes (pauses) between rate decisions, including double or triple pauses.
Complex Patterns: Combinations of pauses, increases, or decreases, such as "Pause after Increase" or "Pause or Increase."
█ Trade Execution and Exit:
The script allows automated trade execution based on selected criteria:
Auto-Entry: Option to enter trades automatically at the first valid period.
Max Trade Duration: Optional exit of trades after a specified number of bars (candles).
Pause Days: Minimum duration (in days) to validate rate pauses as entry conditions. This is especially useful for earlier periods (prior to the 2000s), where rate decisions often seemed random compared to the consistency we see today.
█ Visualization:
Several visual elements enhance the backtesting experience:
Time Period Highlighting: Economic time periods are visually segmented on the chart, each with a unique color. These periods include historical phases such as "Stagflation (1971-1982)" and "Post-Pandemic Recovery (2021-Present)".
Trade and Holding Results: Displays the profit and loss of trades and holding results directly on the chart.
Interest Rate Plot: Plots the interest rate movements on the chart, allowing for real-time tracking of rate changes.
Trade Status: Highlights active long or short positions on the chart.
█ Statistics and Criteria Display:
Stats Table: Summarizes trade results, including wins, losses, and draw percentages for both long and short trades.
Criteria Table: Lists the selected entry and exit criteria for both long and short positions.
█ Economic Time Periods:
The script organizes interest rate decisions into well-defined economic periods, allowing traders to backtest strategies specific to historical contexts like:
(1971-1982) Stagflation
(1983-1990) Reaganomics and Deregulation
(1991-1994) Early 1990s (Recession and Recovery)
(1995-2001) Dot-Com Bubble
(2001-2006) Housing Boom
(2007-2009) Global Financial Crisis
(2009-2015) Great Recession Recovery
(2015-2019) Normalization Period
(2019-2021) COVID-19 Pandemic
(2021-Present) Post-Pandemic Recovery
█ User-Configurable Inputs:
Rate Source Selection: Choose between USINTR or FEDFUNDS as the primary interest rate source.
Trade Criteria Customization: Users can select the criteria for long and short trades, specifying when to enter or exit based on changes in the interest rate.
Time Period: Select the time period that you want to isolate testing a strategy with.
Auto-Entry and Pause Settings: Options to automatically enter trades and specify the number of days to confirm a rate pause.
Max Trade Duration: Limits how long trades can remain open, defined by the number of bars.
█ Trade Logic:
The script manages entries and exits for both long and short trades. It calculates the profit or loss percentage based on the entry and exit prices. The script tracks ongoing trades, dynamically updating the profit or loss as price changes.
█ Examples:
One of the most popular opinions is that when rate starts begin you should sell, then buy back in when rate cuts stop dropping. However, this can be easily proven to be a difficult task. Predicting the end of a rate cut is very difficult to do with the the exception that assumes rates will not fall below 0.25%.
2001-2009
Trade Result: +29.85%
Holding Result: -27.74%
1971-2024
Trade Result: +533%
Holding Result: +5901%
█ Backtest and Real-Time Use:
This backtester is useful for historical analysis and real-time trading. By setting up various entry and exit rules tied to interest rate movements, traders can test and refine strategies based on real historical data and rate decision trends.
This powerful tool allows traders to customize strategies, backtest them through different economic periods, and get visual feedback on their trading performance, helping to make more informed decisions based on interest rate dynamics. The main goal of this indicator is to challenge the belief that future events must mirror the 2001 and 2007 rate cuts. If everyone expects something to happen, it usually doesn’t.
Historical Fed Interest rate This script is Historical Fed Interest rate
The data is between 1991 - 2023 , but for some reason data between 1991 - 10/2001 is not work
Green line for rate cut and Red line for rate hike and detail at the label
Yield Curve InversionThe Yield Curve Inversion indicator is a tool designed to help traders and analysts visualize and interpret the dynamics between the US 10-year and 2-year Treasury yields. This indicator is particularly useful for identifying yield curve inversions, often seen as a precursor to economic recessions.
Features and Interpretations
Display Modes: Choose between "Spread Mode" to visualize the yield spread indicating normal (green) or inverted (red) curves, or "Both Yields Mode" to view both yields.
Yield Spread: A plotted difference between 10-year and 2-year yields, with a zero line marking inversion. A negative spread suggests potential economic downturns.
Color Coding: Green for a normal yield curve (10Y > 2Y) and red for an inverted curve (2Y > 10Y).
Legend: Provides quick reference to yield curve states for easier interpretation.
This indicator is for educational and informational purposes only. It should not be considered financial advice or a recommendation to buy or sell any financial instruments. Users should conduct their own research and consult with a financial advisor before making investment decisions. The creator of this indicator is not responsible for any financial losses incurred through its use.
Weighted Global Liquidity Index (WGLI) ROCThe Weighted Global Liquidity Index (WGLI) ROC indicator calculates the rate of change (ROC) of the WGLI, providing valuable insights into the dynamics of global liquidity. The WGLI consolidates major central bank balance sheets and key financial indicators, such as Foreign Exchange Reserves, Interbank Rates, and Interest Rates, converted to USD and expressed in trillions. Specific US accounts like the Treasury General Account (TGA) and Reverse Repurchase Agreements (RRP) are subtracted from the Federal Reserve's balance sheet for a more detailed view of US liquidity.
Using both the WGLI and the WGLI ROC together allows users to track changes in global liquidity and understand policy trajectories and economic conditions. This dual approach offers insights into asset pricing and helps investors make informed decisions about capital allocation.
Feel free to explore and customize the WGLI ROC script to suit your analysis needs!
Weighted Global Liquidity Index (WGLI)The Weighted Global Liquidity Index (WGLI) provides a comprehensive view of major central bank balance sheets from around the world, using data converted to USD for consistency and expressed in trillions. This indicator includes specific US accounts like the Treasury General Account (TGA) and Reverse Repurchase Agreements (RRP), which are subtracted from the Federal Reserve's balance sheet to offer a more detailed perspective on US liquidity.
The WGLI incorporates not only the balance sheets but also additional key financial indicators such as Foreign Exchange Reserves, Interbank Rates, and Interest Rates, weighted by their global liquidity importance. The regions and central banks included are:
Federal Reserve System (FED) - Treasury General Account (TGA) - Reverse Repurchase Agreements (RRP)
European Central Bank (ECB)
People's Bank of China (PBC)
Bank of Japan (BOJ)
Bank of England (BOE)
Bank of Canada (BOC)
Reserve Bank of Australia (RBA)
Reserve Bank of India (RBI)
Swiss National Bank (SNB)
Central Bank of the Russian Federation (CBR)
Central Bank of Brazil (BCB)
Bank of Korea (BOK)
Reserve Bank of New Zealand (RBNZ)
Sweden's Central Bank (Riksbank)
Central Bank of Malaysia (BNM)
This tool is designed for anyone interested in gaining a snapshot of global liquidity to interpret macroeconomic trends. By examining these balance sheets and additional indicators, users can understand policy trajectories and evaluate the global economic climate. It also offers insights into asset pricing and helps investors make informed capital allocation decisions.
Feel free to explore and customize the WGLI script on Trading View to suit your analysis needs!
[BT] NedDavis Series: CPI Minus 5-Year Moving Average🟧 GENERAL
The script works on the Monthly Timeframe and has 2 main settings (explained in FEATURES ). It uses the US CPI data, reported by the Bureau of Labour Statistics.
🔹Functionality 1: The main idea is to plot the distance between the CPI line and the 5 year moving average of the CPI line. This technique in mathematics is called "deviation from the moving average". This technique is used to analyse how has CPI previously acted and can give clues at what it might do in the future. Economic historians use such analysis, together with specific period analysis to predict potential risks in the future (see an example of such analysis in HOW TO USE section. The mathematical technique is a simple subtraction between 2 points (CPI - 5yr SMA of CPI).
▶︎Interpretation for deviation from a moving average:
Positive Deviation: When the line is above its moving average, it indicates that the current value is higher than the average, suggesting potential strength or bullish sentiment.
Negative Deviation: Conversely, when the line falls below its moving average, it suggests weakness or bearish sentiment as the current value is lower than the average.
▶︎Applications:
Trend Identification: Deviations from moving averages can help identify trends, with sustained deviations indicating strong trends.
Reversal Signals: Significant deviations from moving averages may signal potential trend reversals, especially when combined with other technical indicators.
Volatility Measurement: Monitoring the magnitude of deviations can provide insights into market volatility and price movements.
Remember the indicator is applying this only for the US CPI - not the ticker you apply the indicator on!
🔹Functionality 2: It plots on a new pane below information about the Consumer Price Index. You can also find the information by plotting the ticker symbol USACPIALLMINMEI on TradingView, which is a Monthly economic data by the OECD for the CPI in the US. The only addition you would get from the indicator is the plot of the 5 year Simple Moving Average.
🔹What is the US Consumer Price Index?
Measures the change in the price of goods and services purchased by consumers;
Traders care about the CPI because consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate;
It is measured as the average price of various goods and services are sampled and then compared to the previous sampling.
Source: Bureau of Labor Statistics;
FEATURES OF INDICATOR
1) The US Consumer Price Index Minus the Five Year Moving Average of the same.
As shown on the picture above and explained in previous section. Here a more detailed view.
2) The actual US Consumer Price Index (Annual Rate of change) and the Five year average of the US Consumer Price Index. Explained above and shown below:
To activate 2) go into settings and toggle the check box.
HOW TO USE
It can be used for a fundamental analysis on the relationship between the stock market, the economy and the Feds decisions to hike or cut rates, whose main mandate is to control inflation over time.
I have created this indicator to show my analysis in this idea:
What does a First Fed Rate cut really mean?
CREDITS
I have seen such idea in the past posted by the institutional grade research of NedDavis and have recreated it for the TradingView platform, open-source for the community.
US CPIIntroducing "US CPI" Indicator
The "US CPI" indicator, based on the Consumer Price Index (CPI) of the United States, is a valuable tool for analyzing inflation trends in the U.S. economy. This indicator is derived from official data provided by the U.S. Bureau of Labor Statistics (BLS) and is widely recognized as a key measure of inflationary pressures.
What is CPI?
The Consumer Price Index (CPI) is a measure that examines the average change in prices paid by consumers for a basket of goods and services over time. It is an essential economic indicator used to gauge inflationary trends and assess changes in the cost of living.
How is "US CPI" Calculated?
The "US CPI" indicator in this script retrieves CPI data from the Federal Reserve Economic Data (FRED) using the FRED:CPIAUCSL symbol. It calculates the rate of change in CPI over a specified period (typically 12 months) and applies technical analysis tools like moving averages (SMA and EMA) for trend analysis and smoothing.
Why Use "US CPI" Indicator?
1. Inflation Analysis: Monitoring CPI trends provides insights into the rate of inflation, which is crucial for understanding the overall economic health and potential impact on monetary policy.
2. Policy Implications: Changes in CPI influence decisions by policymakers, central banks, and investors regarding interest rates, fiscal policies, and asset allocation.
3. Market Sentiment: CPI data often impacts market sentiment, influencing trading strategies across various asset classes including currencies, bonds, and equities.
Key Features:
1. Customizable Smoothing: The indicator allows users to apply exponential moving average (EMA) smoothing to CPI data for clearer trend identification.
2. Visual Representation: The plotted line visually represents the inflation rate based on CPI data, helping traders and analysts assess inflationary pressures at a glance.
Sources and Data Integrity:
The CPI data used in this indicator is sourced directly from FRED, ensuring reliability and accuracy. The script incorporates robust security protocols to handle data requests and maintain data integrity in a trading environment.
In conclusion, the "US CPI" indicator offers a comprehensive view of inflation dynamics in the U.S. economy, providing traders, economists, and policymakers with valuable insights for informed decision-making and risk management.
Disclaimer: This indicator and accompanying analysis are for informational purposes only and should not be construed as financial advice. Users are encouraged to conduct their own research and consult with professional advisors before making investment decisions.
Blockunity US Market Liquidity (BML)Get a clear view of US market liquidity and monitor its status at a glance to anticipate movements on risky assets.
The Idea
The BML aggregates and analyzes total USD market liquidity in trillions of dollars. It is used to monitor the liquidity of the USD market. When liquidity is good, all is well. If liquidity is low, the US will maneuver and sell treasury bills (debt) to replenish its treasury, which can lead to bearish pressure on markets, particularly those considered risky, such as Bitcoin.
How to Use
The indicator is very easy to use, there's nothing special about it. This tool is mainly intended to be used as fundamental information, and not for active trading.
Elements
The US Market Liquidity has several distinct components:
FED Balance Sheet
The Fed credits member banks’ Fed accounts with money, and in return, banks sell the Fed US Treasuries and/or US Mortgage-Backed Securities. This is how the Fed “prints” money to juice the financial system.
US Treasury General Account
The US Treasury General Account (TGA) balances with the NY Fed. When it decreases, it means the US Treasury is injecting money into the economy directly and creating activity. When it increases, it means the US Treasury is saving money and not stimulating economic activity. The TGA also increases when the Treasury sells bonds. This action removes liquidity from the market as buyers must pay for their bonds with dollars.
Overnight Reverse Repurchase Agreements
A reverse repurchase agreement (known as Reverse Repo or RRP) is a transaction in which the New York Fed under the authorization and direction of the Federal Open Market Committee sells a security to an eligible counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future.
Earnings Remittances Due to the Treasury
The Federal Reserve Banks remit residual net earnings to the US Treasury after providing for the costs of operations, payment of dividends, and the amount necessary to maintain each Federal Reserve Bank’s allotted surplus cap. Positive amounts represent the estimated weekly remittances due to the US Treasury. Negative amounts represent the cumulative deferred asset position, which is incurred during a period when earnings are not sufficient to provide for the cost of operations, payment of dividends, and maintaining surplus.
Settings
Several parameters can be defined in the indicator configuration. You can:
Choose the smoothing and timeframe to be used in the plot.
Set the EMA lookback period and display it or not. This affects the color of the main plot.
Set the period to be taken into account when calculating the variation rate in the table.
Select the data to be taken into account in the calculation.
Activate or not the barcolor.
Lastly, you can modify all table parameters.
Market Health MonitorThe Market Health Monitor is a comprehensive tool designed to assess and visualize the economic health of a market, providing traders with vital insights into both current and future market conditions. This script integrates a range of critical economic indicators, including unemployment rates, inflation, Federal Reserve funds rates, consumer confidence, and housing market indices, to form a robust understanding of the overall economic landscape.
Drawing on a variety of data sources, the Market Health Monitor employs moving averages over periods of 3, 12, 36, and 120 months, corresponding to quarterly, annual, three-year, and ten-year economic cycles. This selection of timeframes is specifically chosen to capture the nuances of economic movements across different phases, providing a balanced view that is sensitive to both immediate changes and long-term trends.
Key Features:
Economic Indicators Integration: The script synthesizes crucial economic data such as unemployment rates, inflation levels, and housing market trends, offering a multi-dimensional perspective on market health.
Adaptability to Market Conditions: The inclusion of both short-term and long-term moving averages allows the Market Health Monitor to adapt to varying market conditions, making it a versatile tool for different trading strategies.
Oscillator Thresholds for Recession and Growth: The script sets specific thresholds that, when crossed, indicate either potential economic downturns (recessions) or periods of growth (expansions), allowing traders to anticipate and react to changing market conditions proactively.
Color-Coded Visualization: The Market Health Monitor employs a color-coding system for ease of interpretation:
-- A red background signals unhealthy economic conditions, cautioning traders about potential risks.
-- A bright red background indicates a confirmed recession, as declared by the NBER, signaling a critical time for traders to reassess risk exposure.
-- A green background suggests a healthy market with expected economic expansion, pointing towards growth-oriented opportunities.
Comprehensive Market Analysis: By combining various economic indicators, the script offers a holistic view of the market, enabling traders to make well-informed decisions based on a thorough understanding of the economic environment.
Key Criteria and Parameters:
Economic Indicators:
Labor Market: The unemployment rate is a critical indicator of economic health.
High or rising unemployment indicates reduced consumer spending and economic stress.
Inflation: Key for understanding monetary policy and consumer purchasing power.
Persistent high inflation can lead to economic instability, while deflation can signal weak
demand.
Monetary Policy: Reflected by the Federal Reserve funds rate.
Changes in the rate can influence economic activity, borrowing costs, and investor
sentiment.
Consumer Confidence: A predictor of consumer spending and economic activity.
Reflects the public’s perception of the economy
Housing Market: The housing market often leads the economy into recession and recovery.
Weakness here can signal broader economic problems.
Market Data:
Stock Market Indices: Reflect overall investor sentiment and economic
expectations. No gains in a stock market could potentially indicate that economy is
slowing down.
Credit Conditions: Indicated by the tightness of bank lending, signaling risk
perception.
Commodity Insight:
Crude Oil Prices: A proxy for global economic activity.
Indicator Timeframe:
A default monthly timeframe is chosen to align with the release frequency of many economic indicators, offering a balanced view between timely data and avoiding too much noise from short-term fluctuations. Surely, it can be chosen by trader / analyst.
The Market Health Monitor is more than just a trading tool—it's a comprehensive economic guide. It's designed for traders who value an in-depth understanding of the economic climate. By offering insights into both current conditions and future trends, it encourages traders to navigate the markets with confidence, whether through turbulent times or in periods of growth. This tool doesn't just help you follow the market—it helps you understand it.
Global Liquidity IndexThe Global Liquidity Index offers a consolidated view of all major central bank balance sheets from around the world. For consistency and ease of comparison, all values are converted to USD using their relevant forex rates and are expressed in trillions. The indicator incorporates specific US accounts such as the Treasury General Account (TGA) and Reverse Repurchase Agreements (RRP), both of which are subtracted from the Federal Reserve's balance sheet to give a more nuanced view of US liquidity. Users have the flexibility to enable or disable specific central banks and special accounts based on their preference. Only central banks that both don’t engage in currency pegging and have reliable data available from late 2007 onwards are included in this aggregated liquidity model.
Global Liquidity Index = Federal Reserve System (FED) - Treasury General Account (TGA) - Reverse Repurchase Agreements (RRP) + European Central Bank (ECB) + People's Bank of China (PBC) + Bank of Japan (BOJ) + Bank of England (BOE) + Bank of Canada (BOC) + Reserve Bank of Australia (RBA) + Reserve Bank of India (RBI) + Swiss National Bank (SNB) + Central Bank of the Russian Federation (CBR) + Central Bank of Brazil (BCB) + Bank of Korea (BOK) + Reserve Bank of New Zealand (RBNZ) + Sweden's Central Bank (Riksbank) + Central Bank of Malaysia (BNM).
This tool is beneficial for anyone seeking to get a snapshot of global liquidity to interpret macroeconomic trends. By examining these balance sheets, users can deduce policy trajectories and evaluate the global economic climate. It also offers insights into asset pricing and assists investors in making informed capital allocation decisions. Historically, riskier assets, such as small caps and cryptocurrencies, have typically performed well during periods of rising liquidity. Thus, it may be prudent for investors to avoid additional risk unless there's a consistent upward trend in global liquidity.
Fed Projected Interest RatesThis script shows you the current interest rates by the FED (see ZQ symbol nearest expiration)
and the next expirations (see ZQ further expiration dates).
It is important to keep your expiration and descriptions up to date, to do that to the indicator inputs and change as you please.
SPX Fair Value Bands WSHOSHOThis is a variation of the SPX Fair Value Bands indicator which uses WSHOSHO instead of WALCL.
WSHOSHO only includes the 'Securities Held Outright' portion of the Fed balance sheet. This effectively eliminates the portions related to BTFP (Bank Term Funding Program).
USD Liquidity IndexThis USD Liquidity Index composed of 2 parts, total assets and major liabilities of the Federal Reserve .
There is a certain positive correlation between USD liquidity and risk asset price changes in history.
Suggested that USD Liquidity is mostly determined by the Federal Reserve balance (without leveraged), this index deducts three major liabilities from the total assets (in green color line) of the Federal Reserve . They are the currency in circulation (WCURCIR) in gold color, the Treasury General Account (WTREGEN) in blue color, the Reverse Repo (RRPONTSYD) in red color.
The grey line is the calculation result of the USD Liquidity Index. With it goes up, liquidity increases, vice versa.
[WRx450] FED net liquidityThis indicator show the net liquidity of the FED.
Net Liquidity = FED balance sheet (total asset) - Treasury General Account - Reverse Repo
Net liquidity and Net liquidity changes are shown on wednesday. Total asset and TGA report are on weekly basis, thus a daily basis would be inacurate.
it is possible to add this indicator twice and move one of them in another graphic below and show the change. It gives a clear view of the liquidity.
[WRx450] FED net liquidityThis indicator show the net liquidity of the FED.
Net liquidity = Fed balance sheet (total asset) - Treasury General Account - Reverse Repo
All sources can be select otherwise in parameter.
It is possible to show only the weekly changes in Net liquidity.
Net liquidity and Net liquidity changes are shown only on wednesday because Total asset and TGA reports are updated only on Wednesday. (updating the Net liquidity on a daily basis would be inacurate)
Economic Calendar (Import from Spreadsheet)This script draws vertical lines to mark Economic Calendar Events.
Datetime of events is defined by user in Settings via a standardized line of text.
Motivation for coding this script:
All traders should be aware of economic calendar events. At times, when you really need to pay attention to an upcoming major event, you might even decide to use the vertical-line drawing tool to mark it. However, this takes manual effort.
This script provides a solution to performing mundane tasks such as drawing vertical lines and dragging them ever so slightly, just to have them approximately aligned with exact time.
Parameters:
(1) Source data - String representation of collection of datetime referencing to Economic Calendar Events
(2) Line color, & (3) Width of line - For displaying vertical lines drawn by script.
Standardized format for Source Data :
Example:
If 'GMT;2022,6,1,14,0,0;2022,6,2,12,15,0;' is provided to PineScript, then two vertical lines will be drawn on June 6, 2022 according to the exact time in 'YYYY,MM,DD,hh,mm,ss' format at the specified timezone (GMT in this case).
Template for Source Data :
Included here, link below, is a shared Google Sheet that systematically processes Economic Calendar data provided in the 'Raw Data' tab.
drive.google.com
Users are advised to use their preferred methods* to format the string (for source data param.), and apply their own criteria to sort down the Events. (ie. only include Events of High Impact, etc.)
* Preferred methods (as mentioned above) does not mean being limited to using the template as provided in this post.
SPX Fair Value Bands V2An updated version of the SPX Fair Value Bands script from dharmatech and based on the net liquidity concept by MaxJAnderson .
Now with full customization of parameters through the settings (Dialog Box) and allowing the options to the use of
1) Standard Bands based on Offsets of the Fair Value
2) Bollinger Bands
3) Keltner Channels
to better capture buy/sell areas rather than relying on noisy unreliably (and unevenly) updated data from the Treasury/Fed.
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Net Liquidity's importance in the new post-COVID QE to QT regime as described MaxJAnderson
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" In past cycles, size of Fed's balance sheet changed a lot, while TGA and RRP changed relatively little. So size of balance sheet roughly equated Net Liquidity.
(The Treasury General Account) TGA and (Reverse Repo) RRP didn't matter. They were rounding errors by comparison.
But starting in 2020, relative changes in TGA and RRP have been THREE TIMES LARGER than the change in size of the Fed's balance sheet. As result, changes in TGA and RRP have taken over as the primary drivers Net Liquidity.
This is new, and changes the game significantly. Again - the size of the Fed's balance sheet doesn't matter.
What matters is the portion of it that's available to circulate in the economy (Net Liquidity).
And ever since 2020, the Treasury and Reverse Repo have become what controls that. Not the size of Fed's balance sheet.
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The idea that follows is simple,short when $SPX reaches extreme levels of overvaluation, and close out when SPX returns to being undervalued. Here's the formulas I currently use to determine fair value:
Fair Value = (Fed Bal Sheet - TGA - RRP)/1.1 - 1625
And here's the trading rules I currently follow:
Short when diff of $SPX - Fair Value > 350
Close when diff of $SPX - Fair Value < 150
When one of these rules is triggered upon market close on a given day, trades are entered at open of the following day "
Fed Net Liquidity Indicator v2Updated script for jlb05013's original Fed Net Liquidity Indicator. TradingView was bringing in the FRED data in different units than they used to. This code fixes it.
This indicator aims to present a "Net Liquidity" indicator comprised of the Fed Balance sheet , less the TGA account and Overnight Reverse REPO agreements.
Net Liquidity = Fed Balance Sheet - ( TGA + Reverse REPO)
This is an overlay that can be added to stock or other charts (like SPY ) to see how the market may appear correlated to Net Liquidity - injection of liquidity into the markets.
This was hypothesized by Max Anderson, this is just a script realizing that posting.
New updates include a resolution feature, and an option to offset backwards by 2 days per original intent.
USD Liquidity Conditions Index Swing Stock Strategy Original credits goes to @ElDoggo22 tradingview.sweetlogin.com
I looked in the post created by him, of USD liquidity and I have noticed that if you are going to apply a percentile top and bottom to it, can become an interesting swing strategy for US Stocks.
So in this case I decided to create a 99th percentile for top and 4th percentile for bot with a big length, preferably 100+ candles, for this example i took 150.
Rules for entry :
Long : either bot or top lines are ascending
We exit long either the top line is descending, or we have sudden cross of the moving average with both top and bot within the same candle
Short: we enter short when we have a sudden cross down of the moving average with both top and bot within the same candle
We exit short when we have a cross over of the moving average with both top and bot within the same candle ( or we have a long entry condition)
If there are qny questions, please let me know !
