What is SRM?
SRM is a proprietary indicator that tracks key macroeconomic variables to assess market sentiment. It measures whether the market is leaning risk-on (bullish sentiment) or risk-off (bearish sentiment) by analyzing:
Credit Spreads a measure of credit risk appetite
Implied Volatility a gauge of market sentiment and uncertainty
Sector Rotation a comparison of growth vs. value performance
Systemic Risk Management
How SRM Works
SRM combines these three key components, weighing each factor to generate bullish or bearish macro sentiment signals.
The logic is straightforward:
🔑 SRM Rising → Bullish Signal
(Market expects loosening financial conditions, lower interest rates and economic expansion)
🔑 SRM Falling → Bearish Signal
(Market expects tightening financial conditions, higher interest rates and economic contraction)
Timing Entries with Precision
To further refine trade execution, members can access the confirmation mechanism indicator (Enchilada):
If SRM is bullish, and the asset is also confirming with momentum, the market is in a Convergent state (stronger signal)
If SRM is bullish, but the asset is not confirming, the market is in a Divergent state (caution advised)
💡 This allows traders to avoid false signals and only take positions when macro sentiment and individual asset momentum are aligned.
Why Traders Need SRM
✅ Trade with the Macro Trend: SRM ensures you stay on the right side of market sentiment, whether you're trading stocks, ETFs, futures, forex, or crypto.
✅ Identify Risk-On vs. Risk-Off Shifts: Be the first to react when institutions rotate capital between assets, helping you anticipate market moves before they happen.
✅ Reduce Uncertainty: By integrating credit spreads, volatility, and sector performance, SRM provides a holistic market view, removing noise and improving trade selection.
✅ Works for Any Market Condition: Whether the market is rallying or crashing, SRM adjusts dynamically to provide clear, actionable trade signals.
✅ Easy to Use: No complex setups or calculations—just follow the signals and trade with confidence.
Who Can Benefit from SRM?
📈 Options Traders: Spot shifts in volatility and risk appetite before placing trades.
📉 Equities & ETF Traders: Align positions with macro sentiment for better entries and exits.
📊 Futures Traders: Use SRM to time trades in risk assets like NQ and ES or safe-haven assets like 6J and GC.
💱 Forex and Crypto Traders: Track SRM alongside USD-based currency pairs to gauge shifts in capital flows.
Take Your Trading to the Next Level
SRM is more than just an indicator—it’s a complete macro strategy that helps traders make better decisions by focusing on what truly moves markets: risk sentiment. Are you ready to gain an edge in the market and trade with confidence? Click here to start using SRM today!
⚠️ IMPORTANT NOTICE ⚠️
SRM is based on U.S. economic data and market conditions. If you are trading outside of regular U.S. market hours, set the 'SRM Timeframe' to a minimum of 1 day to maintain signal accuracy.
Note: The signal does not update after hours, but a longer-term timeframe will still provide relevant insights for broader market trends.
Index
Credit Spreads
Understanding Bonds and Credit Spreads
A bond is a fixed-income instrument where individuals lend money to a government or company at a certain interest rate, or yield, for an amount of time. Generally, a high-grade rated bond offers more security and lower yield than a low-grade rated speculative bond.
A credit spread is the difference in yield between two different bonds that are the same in all aspects except for the credit rating. This spread reflects the premium investors demand for taking on additional credit risk.
How This Impacts Financial Conditions
Narrowing Credit Spreads: When the spread tightens, it means investors are accepting less compensation for holding riskier bonds. This often signals confidence in economic stability, as institutional players rotate into higher-yielding assets, pushing prices up and yields down. Lower yields make borrowing cheaper, contributing to looser financial conditions which can fuel economic activity and risk-taking in financial markets.
Widening Credit Spreads: A widening spread suggests growing caution. Investors demand a higher yield premium to hold riskier bonds, meaning those bonds' yields rise relative to safer bonds. This increases borrowing costs for businesses, tightening financial conditions and potentially slowing economic growth.
By monitoring credit spreads, traders can gain insight into whether institutions are positioning themselves for stronger or weaker economic growth.
Implied Volatility
Understanding Implied Volatility and Market Sentiment
In the world of institutional trading, options aren’t just used for speculation—they’re a critical tool for managing risk. Large funds often own the underlying assets, so they use put options as insurance against downside risk. When uncertainty rises, demand for this protection increases, driving option prices higher and raising implied volatility (IV).
How This Impacts Market Sentiment
Rising IV: When institutional demand for protective puts increases, it often leads an increase in volatility and reflects uncertainty in the market.
Falling IV: Less demand for hedging means market participants anticipate stability. This reflects increased confidence in the market.
Both call and put volume influence IV, but because institutions typically own the underlying, consistent demand for downside protection means put options tend to have a stronger influence.
By tracking these shifts in volatility, traders can gain insight into institutional positioning and overall market sentiment.
Sector Rotation
Understanding Sector Rotation
Sector rotation is the movement of money between different sectors of the market as institutional investors adjust their positions based on economic conditions, interest rates, and risk appetite. Different sectors tend to perform better or worse depending on where we are in the economic cycle.
How This Impacts Market Behavior
Risk-On Rotation → Money flows into growth-oriented sectors like technology, consumer discretionary, and industrials. This signals confidence in economic expansion, rising corporate earnings, and a favorable risk environment.
Risk-Off Rotation → Capital shifts toward defensive sectors like utilities, consumer staples, and healthcare. This suggests uncertainty or economic slowdown, as investors seek stability and reliable cash flows.
By tracking sector rotation, traders can gauge where institutional capital is flowing, providing insight into broader market sentiment. If high-growth sectors are leading, it often confirms a strong risk appetite. If defensive sectors are taking over, it may indicate a shift toward safety and tighter financial conditions.