Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Margin: How Stock Market Investors Are "Reaching for the Stars"

Stock-Markets / Stock Markets 2020 Nov 20, 2020 - 05:25 PM GMT

By: EWI

Stock-Markets

"This is the highest ratio in the 20-year history of the data."

One of the historic ways that stock market investors exhibit conviction about the direction of prices is to use leverage or participate in the market with borrowed money. Yet another way of putting it is to "trade on margin."

Going all the way back to 1929, that was the downfall of many who viewed the market as a quick way to get rich.

Here's an Oct. 29, 1929 Boston Daily Globe headline:

Margin Account Dumping Brings Stock Crash ...

Yet, you can find examples in more recent history too


Here's a chart and commentary from the June 2007 Elliott Wave Financial Forecast, a monthly publication which offers analysis of major U.S financial markets:

Another area where investors are expressing a wild-eyed optimism rivaling that of 2000 is in their use of leverage. The chart shows that April brought another surge in the use of NYSE margin (shown as a percentage of market capitalization). A similar push accompanied the S&P 500's big top in 2000. The six-month rate of change at the bottom of the chart depicts a rare 4% surge in the use of margin.

As you probably know, the stock market hit a top four months later.

This brings us to what's going on in the latter weeks of 2020. The November Elliott Wave Financial Forecast shows a chart titled "Reaching for the Stars with Borrowed Money" and says:

In recent weeks, some investors have upped the ante by jumping in further with borrowed money. On October 14, the Rydex Total leveraged Bull/Bear Ratio hit 36, which means Rydex mutual fund investors had 36 times as much money invested in leveraged bullish funds vs. leveraged bearish funds. This is the highest ratio in the 20-year history of the data. ...

The extreme use of margin does not mean the market will top this week or next. Yet, history shows that it does serve as a reliable signal for what may be ahead.

It's best to also look at the stock market's Elliott wave pattern, which can provide an investor with a more precise assessment of a market turn juncture.

You see, the Wave Principle provides guidelines for forecasting.

As the book, Elliott Wave Principle: Key to Market Behavior, says:

Many of these guidelines are specific and can occasionally yield stunningly precise results. If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

Would you like to get more insights into the Elliott wave method for forecasting financial markets?

You can -- and 100% free at that!

You can have the online version of the Wall Street classic book by Frost & Prechter on your computer screen in moments by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Margin: How Stock Market Investors Are "Reaching for the Stars". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in