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Margin Debt Nears '07 Froth Level

Kevin Cook

The past few weeks have seen various charts floating around portraying the rise in margin debt on the NYSE over $350 billion.

Last week, BofA Merrill Lynch technical analyst Mary Ann Bartels publised a research note with her analysis of the data generating a "sell signal." The last time their indicator flashed "sell" was April 2010, right after the infamous "flash crash" in May. Here's their chart...

Bartels also called for a correction in mid-January before the S&P had broken out above 1475. So she has marshalled some more data for the cause.

But I am starting to listen closer to her now. This is no small correlation. And the fact that real cash balances are so low and margin debt so high again speaks louder than any sentiment survey of mere opinions.

As economic and market conditions seem to justify ever new highs, and serious investors consider the possible end of the secular bear, is this indicator a BIG flashing red warning that should make you much more cautious?

 

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