Margin Debt Down, But More Room Below

Just a quick chart I made to take a look at NYSE margin debt vs. the NYSE Composite stock index. I ran the chart back far enough to cover the peak of the dot-com bubble. That way we can see over at least one complete cycle.

I don’t think we’re at the new trough yet (but maybe close), here’s why:

  1. In the previous cycle, it took 30 months for margin debt to bottom and 25 months for the index to bottom. We are now 17 months from debt peak and 15 months from index peak.  Still might be some more work to do timewise for this bear market, although pricewise could be a different story.  This post and especially this post have some more that.
  2. In the previous cycle, deleveraging took margin debt down 53% peak-to-trough.  We are now only off 39%.  BUT, the stats get released on a 1-month lag and if you look at the most recent month-to-month change (off a cliff) and apply that number to next data point in the series, margin debt would be 56% off the peak.  It makes sense that the current deleverging will be more than the prior deleverging for all the reasons this is a deeper and longer recession (already).  That probably means more deleverging, but we are likely closer to the end of it than the beginning.

Well, that’s all the time I’ve got today.  Gotta get back to work on BuzzPal.  Bottom line is that margin debt is down, but not yet at a low.  BUT the low could arrive in the next 1-3 months.  Once the deleverging ends, whenever that might be, the releverging likely begins.  Wash, rinse, repeat.  Same story cycle after cycle, even deeper and longer cycles like this one.

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