NYSE Margin Debt: A 1.6% Decline from Last Month’s Record High [Dow Jones Industrial Average 2 Minute, SPDR S&P 500 ETF Trust]

The chart below illustrates the mathematics of Credit Balance with an overlay of the S&P 500. Note that the chart below is based on nominal data, not adjusted for inflation.

NYSE Investor Credit

Here’s a slightly closer look at the data, starting with 1995. Also, we’ve inverted the S&P 500 monthly closes and used markers to pinpoint the monthly close values.

NYSE Investor Credit Inverted

As we pointed out above, the NYSE margin debt data is a several weeks old when it is published. Thus, even though it may in theory be a leading indicator, a major shift in margin debt isn’t immediately evident. Nevertheless, we see that the troughs in the monthly net credit balance preceded peaks in the monthly S&P 500 closes by six months in 2000 and four months in 2007. The most recent S&P 500 correction greater than 10% was the 19.39% selloff in 2011 from April 29th to October 3rd. Investor Credit hit a negative extreme in March 2011.

There are too few peak/trough episodes in this overlay series to take the latest credit-balance data as a leading indicator of a major selloff in U.S. equities. But we’ll definitely want to keep an eye on this metric in the months ahead.

This article is brought to you courtesy of Doug Short from Advisor Perspectives.

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