From Wolf Street, October 21:
It nailed the top last November and it nailed the tops and bottoms going back at least to the 1990s.
Increases and decreases in leverage, when large enough, drive markets up or down. The only summary data on stock-market leverage that we can get is margin debt, reported monthly by FINRA, which obtains the data from its member brokers. There is a lot more leverage in the market, but we don’t get a summary figure of it. Margin debt is our stand-in for overall stock market leverage.
Margin debt data that was released last November, for the month of October, nailed the top in the stock market, as margin debt had nailed prior tops. More on that in a moment, including my annotated long-term chart. Now we’re looking for signs of a bottom. But as of the latest release of margin debt, we’re far from any bottom.
Margin debt fell by $24 billion in September from August, to $664 billion. But it is still very high, 39% above the March 2020 low. The drops in margin debt in January and February 2020 showed that there was already concern that Covid might be tearing up the markets, and some investors prepared by reducing their leverage. At the current level, margin debt has a lot more room to fall – and the process can take years as we’ll see in a moment – before it signals a bottom in the stock market....
....MUCH MORE
