Stock Market and Margin Debt Analysis

Stock-Markets / Stock Market 2023 Dec 03, 2022 - 11:54 PM GMT

Margin debt tends to peak and fall long before the stock market turns lower as basically speculators start to feel the pain of holding losing positions and thus cut back on their bets. Either that or are forced to close their losing trades due to failure to meet margin calls, in which respect this indicator proved very useful in flagging the prospects for a bear market long before it materialised as stock prices trended higher on petrol fumes as the fuel tank was empty.

All those who are still waiting for capitulation are looking for it in the wrong place, here's your capitulation! Margin debt collapsed to rock bottom as burned investors were kicked out of their FOMO / Buy the dip leveraged positions! September data which will likely show a new low in margin debt! Yes falling margin IS BEARISH for stock prices. However this trend is primed for reversal as we saw during August it does not take much expansion in margin debt to feed a bull market. The observed pattern is that margin debt FALLS before the indices peak and bottom WITH the indices, This is because those investing on the basis of margin tend to gamble in higher risk more volatile stocks that tend to start their decent long before the indices. Whilst bottoms tend to occur with the Margin debt lows, the current low is indicative of the degree to which this bear market has wiped out the leveraged investors.

HEED MY WARNING - NEVER INVEST ON LEVERAGE! For one CANNOT INVEST AND FORGET WHEN USING LEVERAGE!

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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

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