Usage

Macro Sentiment Index Usage

Interpreting the Index

• Above 0: Net risk-on sentiment &#xNAN;(Markets favor growth, liquidity, and speculative assets)
• Below 0: Net risk-off sentiment &#xNAN;(Flight to safety, rising volatility, defensive positioning)
• Above +1: Extreme risk-on / complacency &#xNAN;(Potential overheating or topping pattern)
• Below −1: Extreme risk-off / fear &#xNAN;(Stress, capitulation, or strong defensive rotation)

Trading Applications

Strategy	Application
Trend Confirmation	Use MSI to validate equity or crypto trends. A rising price with rising MSI confirms momentum.
Divergence Detection	Price makes new highs but MSI trends lower → bearish divergence.
Mean Reversion	Extended stays beyond ±1 may signal overbought/oversold conditions.
Regime Filtering	Avoid long-only equity positions when MSI is deeply negative.
Sector Rotation	Combine with XLU/XLY or XLP/XLY ratios for defensive/offensive shifts.
Volatility	Falling VIX/VVIX ratio + negative MSI suggests suppressed volatility before a spike.

Configuration Tips

• Shorter lookback (20–40): More responsive, suitable for tactical trading
• Longer lookback (80–120): Smoother, better for macro regime identification
• Enable MA smoothing (50-period EMA): Helps filter noise in choppy markets
• Increase weights on VIX, MOVE, TED, and HYG for crisis detection
• Increase BTC, SOXX, QQQ weights to emphasize tech and crypto liquidity

Chart Setup

Add the indicator to any asset (e.g., SPX, BTCUSD, EURUSD) but interpret within context:

• On SPX/SPY: MSI reflects broad equity risk appetite
• On BTCUSD: MSI captures global liquidity and risk flow into crypto
• On USD/JPY: Helps assess carry trade dynamics

Best Practice: Run MSI on a daily chart for macro clarity, or 4H/1H for tactical entries.