A friend sent me the following chart and part of an article that claimed moderation of margin rate of change is an indication of continued rally in the S&P 500. I added the notes in the yellow text boxes …
This is what I think of the claim that moderating margin debt might be an indicator of a further rise in the S&P 500 — First, computer trading has been in the market since the mid-1990s and if you look closely you can see the Crash of 1997 and the rise in margin debt as the Fed pumped money into the system. In 2000 it was the demise of the dot-coms followed by 9/11 and cautious use of margin following a peak. Well I think the peaks are retail investors and some less-than-bright hedge funds driven by greed to get into the market for what they expect to be a big rally [I feel claims of potential rally conditions are “jaw boning” – a Wall Street term for spinning things to draw in unsuspecting investors]. Right now the professionals are being careful and if the rate of margin increases, I would think that is the ‘stupid factor’ coming into the market, which signals a coming crash.
Look at the above chart in conjunction with another article that I believe supports what I am saying about conditions in the marketplace. CNN’s Fear-Greed Index:
What this all means to entrepreneurs, and anyone else for that matter, is BE CAUTIOUS.
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