2010-12-27

Market Sentiment: Margin Debt Soars to Highest Levels Since September 2008

December 2010 seems to be month when all the stars align, and bullishness is reaching historical extremes. Here's what we have discussed so far this December 2010:
  1. No New Normal Next Year Seen by Strategists Predicting 11% Gain in S&P 500
  2. Hedge Funds Raise Commodity Gain Bets to 4-Year High
  3. Put Call Ratio: Everyone’s Betting On The Bull
  4. Volatility is back to April 2010 levels
  5. Rydex Nasdaq 100 Bull/Bear Ratio At Highest Since Dot Com Collapse
  6. US CEOs Most Optimistic since 2006
  7. Extreme bullishness in emerging countries, money pouring into stocks at the fastest pace since 2007, biggest rally in 16 years
  8. SentimentTrader.com: Equity Hedging Index is at a new record low
  9. Trading of U.S. stock options soared to the second-highest level in nearly four decades of history
  10. Please also note that the put/call ratio is dangerously approaching the historically low level of April 2010
  11. Volatility as measured by the VIX falls back to April 2007 levels
  12. Best time to buy stock in decades (yes, there's an ending 's' at decades)
  13. Jim O'Neill, Goldman Sachs Asset Mgmt. chairman: "2011, Year of the USA"
Margin debt is one measure of the amount of optimism or pessimism in the stock market. Rising margin debt generally correlates to a rising stock market. Margin use has soared to the highest level since September 2008.

We have not reached the levels of July 2007, but given that the market is still 20% below where it was 3 years ago, the leverage investors have got themselves geared in is probably reaching if not exceeding those levels.

3 comments:

Christopher Brown said...

is there enough money on the side and being pumped in, to drive s&p to new highs? completeing a 1,2,3,4,5 wave on a monthly chart?

pej said...

To be honest, I would prefer to think in terms of probabilities. Is is probable that more money is going to be pumped in? It would mean that margin debt is increasing again. It's not likely, not improbable neither to even have a new record margin debt.

But, I believe the probabilities to be at a multi year high are far higher than the probability of reaching a new record high on the S&P...

Markets have been high on Bernanke's alcohol, and have so far ignored sovereign bankruptcies, high unemployment, etc. It's not going to last forever.

ana said...
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