Margin debt was just released for June, shooting up to a new all-time high.
Margin Debt is the amount of money borrowed by investors to buy stocks on margin, making it an important measure of investor psychology as well as leverage. This rapid rise in Margin Debt warns that investors are overconfident, overleveraged, and taking extreme risks – a dynamic that typically comes about just prior to major market tops.
With this latest jump, the 3-month rate of change for Margin Debt came in at 23%. This lofty level has only been reached two other times in history: two months before the peak of the Tech Bubble and four months ahead of the peak in 2007 that led the Great Financial Crisis.
When Margin Debt reverses, the broader market will likely fall quickly as forced selling accelerates downside pressures. Hold onto your hats, a storm may be on the horizon.
Please Note: Margin Debt for June was released after the July issue of InvesTech went to print.