Michael Lombardi: I’ve been writing in these pages how more and more time-proven stock market indicators are starting to scream “Danger!” for the stock market.
Investors are getting too bullish on stocks (an omen of lower stock prices ahead), as seen in the American Association of Individual Investors (AAII) Investor Sentiment Survey. It shows 48% of investors were bullish towards key stock indices on November 7. Going back to just June of this year, the number of bullish investors stood at 32.97%. (Source: American Association of Individual Investors web site, last accessed November 11, 2013.)
Investors are flocking towards key stock indices, buying stocks in hopes they will go up in value. According to the Investment Company Institute, long-term equity mutual funds have been seeing inflows since the beginning of this year. (Source: Investment Company Institute, November 6, 2013.)
To me, this sounds all too familiar. I don’t have to go very far back to see what happened when the majority of investors turned so bullish. Remember 2007? Or the Tech Boom? In both of those situations, the common notion was that key stock indices would continue to soar and those who talked against it were ridiculed.
The reality is that the risks on key stock indices continue to increase. And the higher this market gets, I question how bad the market sell-off is going to be when it finally hits.
I’d say the “bubble” in the stock market has become the biggest I’ve seen in years, as evidenced by the amount of money investors are borrowing to buy stocks, which is often referred to as margin debt.
Leverage is a double-edged sword: When the stock market rises, investors profit heavily. But if the market falls, those investors who borrowed money to buy stocks tend to panic and sell. During the Tech Boom in 1999/2000 and again in 2007, we saw margin debt on key stock indices reach historical highs; subsequent to reaching those highs, key stock indices crashed.
With this said, below I’ve created a chart for my readers that shows the margin debt on the New York Stock Exchange (NYSE). In September of this year, margin debt on the NYSE (the amount of money investors borrow to buy stock on the NYSE) reached its highest level ever! It stood above $ 401 billion.
The above chart is further evidence we are being set up for a big market sell-off. Key stock indices have moved higher on very weak fundamentals. And the higher they go, the bigger the market sell-off is going to be. I remain very cautious.(...)Click here to continue reading the original ETFDailyNews.com article: Warning: Stock Market Margin (Borrowing) Reaches All-Time HighYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
- Stock Market Margin Debt At All Time High
- Dow Jones Industrial Average Warning: Margin Debt Hits Record-High $401 Billion
- Margin Debt On The New York Stock Exchange (NYSE) Is At A Record High
- Dow Jones Industrial Average, S&P 500: Borrowing To Buy Stocks Hits A Record High
- Stock Market Reaches For New Highs Even As Risks Rise
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