Divergence Macro Sentiment Indicator (DMSI)

The Divergence Macro Sentiment Indicator (DMSI)
Think of DMSI as your daily “mood ring” for the markets. It boils down the tug-of-war between growth assets (S&P 500, copper, oil) and safe havens (gold, VIX) into one clear histogram—so you instantly know if the bulls have broad backing or are charging ahead with one foot tied behind.

🔍 What You’re Seeing
Green bars (above zero): Risk-on conviction.

• Equities and commodities are rallying while gold and volatility retreat.
  

Red bars (below zero): Risk-off caution.

• Gold or VIX are climbing even as stocks rise—or stocks aren’t fully joined by oil/copper.
  

Zero line: The line in the sand between “full-steam ahead” and “proceed with care.”

📈 How to Read It
Cross-Zero Signals

• Bullish trigger: DMSI flips up through zero after a red stretch → fresh long entries.
  
• Bearish trigger: DMSI tumbles below zero from green territory → tighten stops or go defensive.
  

Divergence Warnings

• If SPX makes new highs but DMSI is rolling over (lower green bars or red), that’s your early red flag—rallies may fizzle.
  

Strength Confirmation

• On pullbacks, only buy dips when DMSI ≥ 0. When DMSI is deeply positive, you can be more aggressive on position size or add leverage.
  

💡 Trade Guidance & Use Cases
Trend Filter: Only take your S&P or sector-ETF long setups when DMSI is non-negative—avoids hollow rallies.

Macro Pair Trades:

• Deep red DMSI: go long gold or gold miners (GLD, GDX).
  
• Strong green DMSI: lean into cyclicals, industrials, even energy names.
  

Risk Management:

• Scale out as DMSI fades into negative territory mid-trade.
  
• Scale in or add to winners when it stays bullish.
  

Swing Confirmation: Overlay on any oscillator or price-pattern system—accept signals only when the macro tide is flowing in your favour.

🚀 Why It Works
Markets don’t move in a vacuum. When stocks rally but the “real-economy” metals and volatility aren’t cooperating, something’s off under the hood. DMSI catches those cross-asset cracks before price alone can—and gives you an early warning system for smarter entries, tighter risk, and bigger gains when the macro trend really kicks in.