NYSE margin debt soared to another new high last month, bringing it up a stunning 23.3% year-over year.
The theory goes once everyone is on margin, that is a huge warning. The reason being once equity prices finally do start to drop, those on margin will be forced to sell. This feeds on itself and eventually you have a full blown market crash.
We’ve been saying for a while now the big concern will come once margin finally starts to roll over. Previous roll overs have been the big concern.
Also, note that margin debt is currently 18.3% above the 2007 peak. For some context, the 2007 peak was 36.9% above the 2000 peak. This is a point I hear very few making.
Chalk this one up to a potential warning, but it is also a warning we’ve been hearing since last year when margin debt got up near the 2007 levels. Had you listened then, you’d have missed out on some great gains.
The bottom line is margin debt very well could have room to continue to move higher and higher margin debt by itself isn’t bearish. What is bearish is once it starts to roll over, that’s when I’d start to worry.