Rule #3: Money’s Directional Flow “Determines” the Market’s Direction …

“The stock market is about money. Money flows in and stocks go up,
Money flows out and stocks go down.” 
Jesse Livermore (July 26, 1877 – November 28, 1940)

When you look at the chart (see below), you will see the direction and trending of Net Inflowing Liquidity levels (often referred to as “direction money flows”  … and when you know what the trending of money flows are, you will know what will happen to the market.

Here is what to observe on this chart: 
First, the Inflowing Liquidity is in Liquidity Expansion territory.   Since it is below the dotted line in that section, it is in the Second Quadrant.  (There are four Quadrants; two are above the Expansion territory, and two are below in the Contraction territory.)

The second thing to observe is the pattern outlined by the thick maroon lines.   That is called a triangular pattern progresses, the tops and bottoms converge until there is a breakout above or below the triangle.   So, as of January 12th. of 2015, the Inflowing Liquidity was traveling toward the apex of the triangle where an ensuing breakout was imminent.     Typically, triangular breakouts occur two-thirds to seven-eights from the end apex … so we were getting close to a breakout.   (FYI … This first chart is updated every day and is in the paid member area.)

So, the Money story is depicted in the chart below.  There are three possibilities you can observe:
1. When the Inflowing Liquidity flows are either in Expansion or Contraction territory.
2. When Money Flows are in an “up trend” or in a “down trend”.  Definitions: In an up trend, the trend line being observed is making higher/highs and higher/lows.  In a down trend, the trend line being observed is making lower/highs and lower/lows.
3. And, when a trend line is broken to the upside or downside.  (Breaking to the upside indicates a stronger or continuing up trend, and breaking to the downside indicates a stronger or continuing down trend.)

Also worth noting … when Inflowing Liquidity is trending up (higher/highs and higher/lows), then the market will follow that direction.  When Inflowing Liquidity is trending down (lower/highs and lower/lows), then the market will follow that direction.