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"A few observations regarding the consistent patterns of human decision making seen in the historical rhythm of margin debt are important.* First, it is clear that margin debt peaks very close to the final run to cycle highs in stocks with each bull market cycle.* Remember, when asset prices double, we as humans want them more than ever, but when prices are cut in half, we avoid them like the plague.* At the recent peak, margin debt was up just shy of $50 billion this year after being flat in all of last year.* After these near vertical historical accelerations at cycle tops, margin debt has peaked and begun to decline while stocks temporarily go on to new highs – this divergence being the tell-tale indicator equities have peaked for the cycle.* *Because this data comes to us with a bit of a short-term lag, it’s seen in hindsight.* At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion.* On a very short-term basis, this divergence was established in July.Where we go ahead will now be important.* Official NYSE August margin debt levels will not be available for a number of weeks, but it’s a very good bet margin debt levels contracted again in August, perhaps noticeably.* As I watched the Dow open down over 1000 points a number of Monday’s back, it was clear margin liquidation drove the open.* Price insensitive selling dominated early trading in many an asset price gap down."
"A few observations regarding the consistent patterns of human decision making seen in the historical rhythm of margin debt are important.* First, it is clear that margin debt peaks very close to the final run to cycle highs in stocks with each bull market cycle.* Remember, when asset prices double, we as humans want them more than ever, but when prices are cut in half, we avoid them like the plague.* At the recent peak, margin debt was up just shy of $50 billion this year after being flat in all of last year.* After these near vertical historical accelerations at cycle tops, margin debt has peaked and begun to decline while stocks temporarily go on to new highs – this divergence being the tell-tale indicator equities have peaked for the cycle.* *Because this data comes to us with a bit of a short-term lag, it’s seen in hindsight.* At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion.* On a very short-term basis, this divergence was established in July.Where we go ahead will now be important.* Official NYSE August margin debt levels will not be available for a number of weeks, but it’s a very good bet margin debt levels contracted again in August, perhaps noticeably.* As I watched the Dow open down over 1000 points a number of Monday’s back, it was clear margin liquidation drove the open.* Price insensitive selling dominated early trading in many an asset price gap down."
[text] Another Sign of a Market Top: Divergence Between S&P 500 and Margin Debt
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