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.

Category: Credit, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Is Margin Debt Signalling a Top?”

  1. Pantmaker says:

    Yes it is. Thank you for continuing to present the reality of this kooky market to those who will listen. Lot’s of Kool-Aid being passed around out there.

  2. Sechel says:

    Interesting graph. But debt related to equity purchases is even higher if one considers the huge amounts of corporate debt floated to engage in stock buy-backs.

  3. VennData says:

    I’ll we have another Spring disaster? Recall, 2010 was the confidence-sapping BP oil spill (Drill, Baby, Drill!) Recall 2011 was also energy related the Fukushimi Daiichi reactor disastor. If we don”t have one, maybe the economy isnat escape velocity.

  4. tradylady says:

    BR, her first name, spelling… it’s that Anglish teacher thing ;)

  5. discusCS says:

    Is that millions or billions? $300 million don’t sound like much. Hard to argue w/ that chart though.

  6. b_thunder says:

    $300 Million or Billion? $300M seems to be a very , very insignificant amount compared to the size of the stock market. i mean, it’s less than 3% of Goldman’d share of TARP!


    BR: DOH — Good catch

  7. JimRino says:

    Interesting, another hockey stick graph.

  8. PeterR says:

    Barry, does the data go further back than 1999?

    The Margin Debt bars in blue at the SPX double top in 2007 are huge. If SPX is going to test/put in another top around 1500, might we see another all-time high in Margin Debt well above the high of 380 (left scale) in 2007?

    In other words, the recent 2011 highs in Margin Debt may not be “all she wrote?”

  9. ashpelham2 says:

    Maybe it’s Million Billion. If you’ve never heard of it, let me put it into a sentence so it makes more sense:

    “By the time President Obama left office in January 2013, the price of regular gasoline was a Million Billion times higher than it was just 3 years earlier.”

    Or, alternatively:

    “President GW Bush was quoted as saying ‘I’ve got more money than most. I might have a Million billion bucks!!’”

  10. BigDaddy says:

    As the size of the markets get bigger, the same size of margin debt is not as important. Data is available via the NYSE back to 1959. Margin debt first crossed $100billion in 1997, $200b in late 1999. A better way to look at the data is on y/y or according to Ned Davis, on a 15 month ROC. When margin debt expanded at a very rapid clip, usually over 60% on a 15mo basis, it was a good time to sell. June ’07 was the last time that occurred. Conversely, a contraction in debt by more than more than 20% was a buy signal. Last time for that was January ’09. Much of the rest is noise. There have been six sells since 1970 and six buys over the same time frame. This method gives a better picture of when investors are very excited (expanding margin) or frightened (contracting margin). Today, margin debt is up a mere 5% vs. 15 months ago and actually lower vs. 12 months ago….not what I would call animal spirits.

  11. PS says:

    Further to your highlighting Helene Meisler’s comments and graph on NYSE margin debt, for several years I too have tracked this number and have found that when combined with VIX as a measure of investor complacency, it is a useful tool for raising orange and red flags around market tops.

    The fundamental ‘thesis’ of combining margin debt and investor complacency in one index (margin debt divided by VIX) is that a combination of high investor leverage and high investor complacency is a toxic mix indeed. As you know, margin debt figures are reported with a one month lag, so to try the make the indicator more timely, I estimate margin debt one month in advance.

    Thus, for March 2012, I estimate NYSE margin debt could be in the range of $300-$305b. Dividing 300-305 by 13.66 (the VIX low in March so far, on Mar 16th) yields an indicator value of 21.96 to 22.33. On the basis of historical experience, I treat any indicator value above 20 as an orange flag and any indicator above 22 as a red flag. Thus the estimated March figure of approx. 22 is enough to prompt me to “head to the hills” i.e. seek refuge in high cash reserves.

    Stated another way one might say that NYSE margin debt above $300b is a worry in and of itself but when combined with high levels of investor complacency as measured by a low VIX, the danger signal is magnified and intensified.

  12. [...] our earlier comments about margin were cautious, volume is not. If you are looking for an excuse to exit equities, this is not it. [...]

  13. Pantmaker says:

    Hard to argue post peak the party is typically over.

  14. charlie1939 says:

    @ PeterR

    Here is another look from July 2011 back to 1995 from dshort.com and both the S&P and the Margin Debt are corrected for inflation…
    See: http://static5.businessinsider.com/image/4e2feb59eab8ea794d00002a-560-405/chart.jpg

  15. charlie1939 says:


    …not trying to be too picky, but you need to change all three “millions” to “billions,” i. e., “$278 million” still needs to be changed to “$278 billion.”

  16. [...] always be adjusted by issues, market cap, volume, etc to make them comparable over time but this chart of margin debt at TBP is still [...]

  17. [...] See the chart and some commentary from Helene Meisler. Tweet [...]

  18. duaneteddy says:

    These two series look very highly correlated with no lead or lag. If Margin debt led the S&P it could be telling you something(that the market was going to rise or decline). But not when the two series are coincident.