Helene Meisler discusses the role of margin debt in markets hitting a top:
“Margin Debt tends to rise as markets rise. While there is no magic number that rings a bell at the top, you can see from the chart below that in the last decade once Margin Debt gets over $300 billion we would have to consider we are no longer ‘early’ in a rally. It tends to put to bed the notion that folks are underinvested in the market.
We won’t have the March figures out for a few more weeks but February showed a rise so we should expect March’s reading might very well get over $300 billion. In 2000 we did not quite get to $300 billion as we topped out at $278 million. However you can see it corresponded with the peak in that market as well.
For now I would note that we are not yet close to the level of investment we saw in the spring of 2011 but we are likely rapidly approaching it.”
I know Helaine from my Street.com days, she has a very insightful approach to viewing markets.
UPDATE: I corrected Millions for Billions; My apology for the error.
Helene Meisler writes a daily technical analysis column and TheStreet Top Stocks. Meisler began her career as a market technician at Goldman Sachs and Cowen & Co. For more information, click here.