What is market liquidity analysis?
Equity market liquidity analysis holds that public companies are the house in the stock market. When they are net buyers of shares, the stock market eventually rises. When they are net sellers of shares, the stock market eventually drops. By contrast, individual investors follow rather than lead the stock market. When individuals join public companies in being net buyers, it is a liquidity bull market because more money is chasing fewer shares. When individuals follow hedge funds and pension funds in buying while public companies are net sellers, a sell-off is likely to occur soon. When individuals join public companies in being net sellers, it is a liquidity bear market because less money is chasing more shares. When public companies are net buyers while individuals are heavy net sellers, the market is making a bottom. For further information on liquidity theory, click here.
