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(7/22/17)
During the past year Margin Debt in the NYSE has made another
all time high above 500 Billion Dollars. Thus investors continue to borrow
money to invest in the market. Since the 1990's each surge higher in
Margin Debt (points A to B) has been associated with significant rises in the
market (points C to D). This has then been followed by a substantial drop
in Margin Debt (points B to A) which corresponded to significant correction in
the market (points D to C).
Meanwhile looking at a shorter time frame from the 1990's notice
there has been an expanding upward channel in Margin Debt. Furthermore
Margin Debt has reached the upper part of the channel. The last time
Margin Debt reached the upper part of the channel in 2015 (point C) this was
followed by a 13% correction in the S&P 500. Thus this is something to
be aware of as we move into the Fall.
If we do see a pullback in Margin Debt, similar to 2015, then a
13% correction in the S&P 500 would yield a target near the longer term
upward trend line (black line). In addition this is where the S&P 500
encountered prior resistance in 2015 at the 161.8% Extension Level (purple
line).
Amateur Investors
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