Debt, debt and more FOMO…
Source: topdowncharts.com and my annotations
Ratio of leveraged longs to shorts is at around 3.5, which is 2014-2019 average of around 2.2. Bad news (common signal of upcoming correction or sell-off). Basically, we are witnessing a FOMO-fueled chase of every-rising hype and risk appetite. Meanwhile, margin debt is up 70% y/y in March 2021, although from low base back in March 2020, now back to levels of growth comparable only to pre-dot.com crash in 1999-2000. Adjusting for market cap – some say this is advisable, though I can’t see why moderating one boom-craze indicator with another boom-craze indicator is any better – things are more moderate.
My read-out: we are seeing margin debt acceleration that is now outpacing the S&P500 acceleration, even with all the rosy earnings projections being factored in. This isn’t ‘fundamentals’. It is behavioral. And as such, it is a dry powder keg sitting right next to a campfire.
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