TrimTabs Liquidity Theory
"Price is a function of liquidity and has nothing to do with value."
TrimTabs believes that supply and demand forces determines market prices, rather than fundamentals. 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.
TrimTabs provides daily coverage of corporate actions, mutual fund and exchange-traded fund flows, and real-time macro indicators, which collectively drive changes in equity market liquidity. Our equity market liquidity analysis predicts the near term direction of the stock market. Our clients look to us as the best source for liquidity-based investment insights.
L1 is our single most important measure of changes in market liquidity. L1 measures the Net Change in Trading Float of Equity Shares.
When Equity Market Liquidity appear to be contracting (L1 < 0), TrimTabs will tend to go long. Reciprocally, TrimTabs will tend to go short when L1 is positive.