This indicator aims at detecting money market pressure from the most liquid futures instrument, the E-mini S&P 500 futures (ES). Assuming fully efficient market, the spread between the ES and the SP500 index should be equal to the cost of carry, which is the short-term interest rate plus the dividend yield in the remaining days to maturity of the ES contract.
If the spread is much higher than the cost of carry, it may indicate that there is high demand for ES futures long positions, but more importantly, it may indicate that bank lending is not elastic enough to allow hedge funds arbitrage away the abnormal spread. The spread series has been roughly adjusted for dividend yield, and thus should be around 0 if money market is operating smoothly.
Due to the high noise in this series, we use a 20-day (one month) and a 60-day moving average to smooth the series.