GME Liquidity + RSI Composite (IWM Proxy)

🟦 Blue Line — “Liquidity Proxy” (IWM–GME % Change Spread)
What it is

The blue line measures the relative liquidity and risk appetite of the market compared to GME.
It’s built from the % change spread between IWM (small-cap ETF) and GME, smoothed and normalized.

Liquidity Proxy
=
Normalize
(EMA (%Δ𝐼𝑊𝑀−%Δ𝐺𝑀𝐸))
Liquidity Proxy=Normalize(EMA(%ΔIWM−%ΔGME))
What it means

When it rises, IWM is outperforming GME → capital is flowing into broad small caps (a sign of expanding liquidity and risk appetite).

When it falls, GME is underperforming even while IWM weakens → liquidity is contracting; risk capital dries up.

In simple terms:

High blue line → easy liquidity, risk-on conditions.

Low blue line → tight liquidity, risk-off conditions.

Why it may work

GME trades like a liquidity-sensitive high-beta small cap.
When system-wide liquidity expands (Fed balance sheet growth, lower vol, tight credit spreads), speculative assets — especially GME — tend to outperform.
By comparing GME to IWM, you’re isolating that “liquidity tide” — whether capital is rising or receding beneath risk assets.

🟧 Orange Line — “Composite” (Liquidity + RSI Momentum)
What it is

The orange line blends the liquidity signal (above) with a momentum measure — usually RSI or a smoothed rate of change — equally weighted.

Composite
=
0.5
×
Liquidity Proxy
+
0.5
×
Momentum
Composite=0.5×Liquidity Proxy+0.5×Momentum
What it means

Combines external liquidity conditions (market environment) with internal strength (GME’s own price action).

High orange (>0.8): liquidity strong + momentum strong → sustainable uptrend.

Low orange (<0.2): liquidity weak + momentum exhausted → accumulation or capitulation zones.

This gives you a liquidity-adjusted momentum oscillator — not just “is GME oversold,” but “is it oversold during a liquidity drought?” (which matters much more).

🧠 Why It Works Conceptually

This structure mirrors findings from several academic papers (Pastor & Stambaugh 2003, Sadka 2006, Avramov & Hameed 2016):

Liquidity drives returns — risk assets rise when aggregate liquidity improves.

Momentum needs liquidity — momentum strategies perform best in high-liquidity regimes and crash in liquidity contractions.

By combining them, you capture regime shifts:

Rising liquidity + improving momentum → start of an expansion phase.

Falling liquidity + negative momentum → unwinds or bear phases.

So visually:

The blue line shows the tide (macro liquidity).

The orange line shows the surfer riding it (GME’s strength riding that liquidity).

When the two rise together → that’s when GME can actually run.
When they diverge (orange rising while blue flat or falling) → that’s often a trap or exhaustion phase.