Dark Energy Divergence Oscillator

The Dark Energy Divergence Oscillator indicator tracks the divergence between asset prices and global central bank liquidity to identify potential overextensions or support levels in the market. By normalizing price and liquidity data into a unified oscillator, it highlights periods where market valuation is either well-supported by available capital or significantly stretched beyond liquidity fundamentals.

Usage

The indicator can be used to identify liquidity-driven cycles in major indices and stocks. It appears as an oscillator around a zero midline, often rendered as a candlestick or line chart within a separate pane.

• Positive Values: Indicate that ample liquidity is present relative to the asset's price, often suggesting a supportive environment for bullish momentum.
• Negative Values: Suggest that price levels have extended beyond what current liquidity levels can easily support, potentially signaling a "liquidity deficit" and increased risk of a correction.
• Zero-Bound Crosses: A crossover above zero suggests liquidity is becoming more supportive, while a crossunder zero suggests price is outpacing the available liquidity pool.

Details

The script operates on the premise that modern asset valuations are heavily influenced by central bank balance sheets and liquidity factors (Quantified Easing). It calculates a liquidity index by aggregating various central bank assets and subtracting "drains" like the Fed's Reverse Repo (RRP).

The tool employs a normalization process (0 to 1) for both the price of the analyzed symbol and the calculated liquidity total. By subtracting the normalized price from the normalized liquidity, it reveals the divergence. This version improves upon older formulas by calculating the normalization factor per bar rather than using a static all-time high, ensuring historical data is not influenced by future liquidity peaks.

Settings

Ponzi Settings

• Use Pre-Ponzification Offset: When enabled, the calculation subtracts the price of the asset at a specific historical date (defaulting to the start of the 2008 QE era) before normalization.
• Ponzi Start Date: Defines the timestamp used for the pre-ponzification offset price sampling.

Non-US Central Bank Liquidity

• JPY/CNY/UK/SNB/ECB/KRC/CAD Assets: Toggle switches to include or exclude liquidity data from the central banks of Japan, China, the UK, Switzerland, the Eurozone, South Korea, and Canada.

Include Fed Balance Sheet Items

• Inflation Compensation (WSHOICL): Includes or excludes Fed inflation compensation from the assets portion of the balance sheet.
• Unamortized Premiums (WUPSHO): Includes or excludes unamortized premiums from the calculation.
• Loans (WLCFLL): Includes or excludes various Fed loan programs.

Chart & Table Settings

• Show Asset Allocation Table: Displays a dashboard showing Total CB Liquidity, Market Cap of the current symbol, and the "DEDO 0 Price" (the price at which the asset would be perfectly aligned with liquidity).
• Multiplier: Scales the oscillator values for better visibility on the chart.

FAQ

How do I interpret a deep negative reading on the oscillator? A deep negative reading indicates that the asset price is significantly higher than its historical relationship with central bank liquidity would suggest, potentially indicating an overvalued state.

Why does the table show "N/A" for Market Cap? The table requires financial data (Total Shares Outstanding) to calculate Market Cap. If this data is unavailable for the specific ticker or timeframe, it will display N/A.

How can I access the Dark Energy Divergence Oscillator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.