Confluences

Composite Risk Index Confluences

The Composite Risk Index is a macro tool. It is highly effective when paired with localized, lower-timeframe tactical indicators from the CandelaCharts library:

1. Business Cycles

The Composite Risk Index acts as an incredibly powerful timing tool when overlaid with the CandelaCharts Business Cycles indicator.

• While the Business Cycle indicator identifies the broader structural phase of the economy (e.g., Expansion vs. Contraction), the Composite Risk Index dictates how capital should be allocated within that phase.
• For example, if the Business Cycle reads "Expansion" and the Risk Index flashes Risk-On (Teal), this provides ultimate structural confluence to maximize portfolio leverage and beta.

2. Macro Liquidity Gap

In a Risk-Off or Crisis regime, the market often experiences severe liquidity imbalances. Pair the Risk Index with the CandelaCharts Macro Liquidity Gap indicator.

• When the Risk Index flashes a Crisis score (-1.0 to -2.0) precisely when the Macro Liquidity Gap indicator enters a deep Buy Zone (indicating that global M2 money supply is significantly outpacing the underlying market index), it offers the ultimate, high-conviction "Buy the Dip" confluence.

3. Macro Credit Model

Use the CandelaCharts Macro Credit Model to confirm systemic credit stress and shrinking liquidity.

• If the Risk Index transitions to Risk-Off or Crisis, you should simultaneously see the Macro Credit Model's Z-Score spike into Elevated (+1.0) or Stress (+2.0) levels. This confirms that High Yield corporate spreads are widening against Investment Grade bonds—meaning institutional capital is demanding higher yields for risk, directly validating the regime shift.