In the beginning of the month, we had noted that Short Selling Had Surged to a Record.
Now, we may be seeing the opposite side of that play: Margin debt is slipping on the NYSE.
Traditionally, moderate amounts of margin help drive stock prices higher, as traders are willing to borrow to buy. As this cuts back, it reflects a subtle change in investor psychology.
A quick WSJ excerpt:
"Margin debt at New York Stock Exchange member companies, as tracked by the exchange, fell about 2.6% from the end of the first quarter through May, the most recent month for which figures are available. Although margin debt rose in April, those gains were more than offset in May as the stock market fell.
The Big Board’s data show that debit balances in margin accounts of customers of NYSE-member securities firms fell to $230.54 billion in May from $236.67 billion in March. June numbers will be available later this month.
Margin debt peaked at $278.53 billion in March 2000, as the Nasdaq Composite Index was reaching its record. Market analysts track margin-debt activity as an indication of investors’ appetite for speculative trading."
Note that we are quite a bit away from the massive margin borrowing top of 2000. This will be interesting to watch.
Margin-Debt Use Falls Amid Volatile Market
GASTON F. CERON
WSJ, July 5, 2006; Page C11