Surge In Trading Leverage Triggers Bank Of America Contrarian Sell Signal

Tyler Durden's picture


Leverage, as measured by NYSE Margin Debt, rose a huge 31.6% year-on-year (YOY) and 10.2% month-over-month (MOM) to $364bn in January, compared to the July 2007 peak of $381bn. Net Free Credits at -$77.2mm (essentially cash balances in margin accounts) have plunged to levels (and at a rate) that BofAML believes generates a sell signal and typically result in market correction. The last time a (2-standard-deviation) sell signal like this was generated was on April 2010 and the S&P 500 subsequently corrected by 16% in two months. While the US equity market has not responded to at or near overbought or contrarian bearish sentiment levels very recently (remaining overbought for weeks) BofAML also notes a tactical sell signal was just triggered that is similar to those from September 14 and April 27, 2012 – both preceded market pullbacks.


Margin Debt is soaring (as NYSE Cash balances collapse)...


at a rate that has trigger contrarian sell signals as its rapidity is a 2-standard-deviation rise...


Short-term Sentiment has also shifted bearish...


So if you were wondering where the 'money on the sidelines' is - it's all-in - again!


Charts: BofAML

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Tue, 03/12/2013 - 15:08 | 3323402 Ahmeexnal
Ahmeexnal's picture

Wake me up when JPig Morgan is found floating down the Hudson river.

Tue, 03/12/2013 - 15:17 | 3323457 kaiserhoff
kaiserhoff's picture

Let's hope Dick Bove wore his "do not resuscitate" badge to work today.

Tue, 03/12/2013 - 15:27 | 3323496 fonzannoon
fonzannoon's picture

Dear BAC,

POMO, QE4eva, Kevin, 3pm ramp.



Tue, 03/12/2013 - 15:49 | 3323579 whatsinaname
whatsinaname's picture

But Tyler - isnt this the New Normal ?

Tue, 03/12/2013 - 15:09 | 3323404 ihedgemyhedges
ihedgemyhedges's picture

If Goldman comes out and contradicts BofAML, then I'll know it's time to sell..........

Tue, 03/12/2013 - 15:27 | 3323498 machineh
machineh's picture

Maybe it's just a sell signal on Bank of America Merrill Lynch Pierce Fenner Smith Pelosi Reid McConnell Boehner Paul Lew Brennan & Durden ... did I leave out anybody?

Tue, 03/12/2013 - 15:10 | 3323412 jim249
jim249's picture

A good article from Reuters. Things are still declining for the middle class and lower.

Tue, 03/12/2013 - 15:10 | 3323417 Rayfp65
Rayfp65's picture

The Money on the sidelines is being printed DAILY!!

Tue, 03/12/2013 - 15:13 | 3323435 razorthin
razorthin's picture

Who says they can't short with that moolah??

Tue, 03/12/2013 - 15:36 | 3323529 Say What Again
Say What Again's picture

You know D.E. Shaw, Paulson, and at least a few others are short.

Tue, 03/12/2013 - 15:13 | 3323431 razorthin
razorthin's picture


Tue, 03/12/2013 - 15:13 | 3323436 zdk45
zdk45's picture

Ahhhh....and sit back, maybe make some popcorn...and just watch and enjoy the afternoon ramp...

Tue, 03/12/2013 - 15:15 | 3323449 swissaustrian
swissaustrian's picture

We're still bound in a long term range just like in the 1970s. Valuations are nowhere near the late 1970s (overall P/E at 6) and we're at the upper end of the current range.

Tue, 03/12/2013 - 15:22 | 3323470 razorthin
razorthin's picture

Uh, I think you are supposed to exclude the negative P/Es from the mean.

Tue, 03/12/2013 - 15:15 | 3323450 Edward Fiatski
Edward Fiatski's picture

But... but... if I'm over-leveraged & long stawks, Ben promised I would never lose moneh? :'(

Tue, 03/12/2013 - 15:17 | 3323454 swissaustrian
swissaustrian's picture

Dow will close green again...

Tue, 03/12/2013 - 15:18 | 3323458 Cdad
Cdad's picture

Money on the

Cdad's BlowHorn [CNBC] unwatchable indicator is now pushing through the 100% unwatchable mark...where EVERYDAY THE MARKET IS OPEN is a GREAT DAY TO BUY STAWKS!  

The sell signal is confirmed by the various and absurd proposed catalysts that will take the market higher EVERYDAY THE MARKET IS OPEN, including...

"The market will continue higher."  ...wishful thinking as a catalyst, currently the most popular The BlowHorn

"Where else can you put your money?"...the Question as Catalyst

"The market is still cheap compared to bonds." ...the compared-to-nothing catalyst, or the compared-to-Bernanke-bid

"Don't fight the Fed."  ...the cliche as catalyst [which oddly would favor buying bonds in a front running effort]

"Another new all time high" ...the sucker's catalyst, also know as the idiot to your left catalyst

And here comes Maria "I lost my intellectual curiosity years ago" Bartiromo to bring it all home with a bull/bull/bull debate in the closing hour. 

Tue, 03/12/2013 - 15:47 | 3323565 Ham-bone
Ham-bone's picture


"the market well off it's lows."...the all clear signal to buy buy buy n take a ride on the POMO train.

Tue, 03/12/2013 - 15:58 | 3323587 tickhound
tickhound's picture

"Housing has bottomed."

"Greece has bottomed."

"Europe has bottomed."

"Now that QE is OFF the table.."

"Now that QE is back ON the table.."

Earnings "better than expected."

"Corporations will start hiring"

"It's not too late to get in"

"There's more room to the upside."

The "Global Growth Story remains intact"

"The market can stay irrational longer than you can stay solvent"

Dividend payers will start giving "MOAR cash back to shareholders"

When will we start seeing "cash buy-backs?"

"Put your money to work"

"Corporate profits at all time highs"

"The Stawk Market is a forward looking indicator"

It's not all the Fed... "It's the strong underlying fundamentals"

"Limited Head-winds"

"Need to be positioned for the GREAT-ROTATION"

"The American Consumer is RESILIENT"



"What's all this shareholder ACTIVISM?  Is this a witch hunt"

"What's with all this POPULISM?  What is it exactly that these people WANT?  Don't they know the banks paid the taxpayers BACK?"

"hahahahahahahahahahaha, back to you Bob"



Tue, 03/12/2013 - 16:08 | 3323639 Ham-bone
Ham-bone's picture

golf clap to you and Cdad (after I finish vomitting)...

Tue, 03/12/2013 - 15:22 | 3323480 poggi
poggi's picture

Money on the sidelines?  Maybe not


Tue, 03/12/2013 - 15:26 | 3323492 davidsmith
davidsmith's picture

So...they're borrowing cheap money so they can gamble?  Is this the takeway?  Then it sounds like, "recovery" or not, American corporations are going to collapse.  Is this what you are telling me?

Tue, 03/12/2013 - 15:37 | 3323500 Ham-bone
Ham-bone's picture

and prepare for the market to get overbought'er than it already was...rally time!!!

It's all bout the spice...must keep the spice flowing.  Trust Ben, he'll keep the spigots flowing and this time there is no end!!!

BTW - QE is kinda like the Die Hard series (1,2,3,4,5)...long as John McClane (aka Ben Bernanke) lives, the franchise goes on and on and on...And like any Die Hard movie, everybody knows how it will end as the "market" is "saved" again from the "bad guys".  Market rip to finish the day jus cus they can and probly like showing off a little...

Tue, 03/12/2013 - 15:32 | 3323519 q99x2
q99x2's picture


Tue, 03/12/2013 - 15:33 | 3323521 madcows
madcows's picture

BTFD, right?  So long as BenJammin is at the helm no one will lose money in the market. 

Tue, 03/12/2013 - 15:45 | 3323564 Goggles Pisano
Goggles Pisano's picture

Cramer said this market has legs......and that's all that matters.

Tue, 03/12/2013 - 15:51 | 3323584 jim249
jim249's picture

The market or Maria?

Tue, 03/12/2013 - 15:53 | 3323592 They Tried to S...
They Tried to Steal My Gold's picture

legs of those sitting in wheel chairs......the man is a Caricature of himself...

Tue, 03/12/2013 - 15:47 | 3323568 thismarketisrigged
thismarketisrigged's picture

this bitch maria bartaromo, is fucking so happy how we may continue the streak of the dow on tv.


i want to punch her, the volume is so low, this market does not even matter anymore until the crash happens and the fed stops qe for good

Tue, 03/12/2013 - 16:10 | 3323585 Ham-bone
Ham-bone's picture

Damn you man for even uttering those words "stops QE for good" your heels together and say it with me, there is no place like QE, etc. etc.

"Elizabeth, this is the big one..."  no ordinary sell signal or overvaluation will do for this market...we're going for world guiness stuff this time.  Buckle up, up, up.

Tue, 03/12/2013 - 15:53 | 3323594 flow5
flow5's picture

"The last time a (2-standard-deviation) sell signal like this was generated was on April 2010 and the S&P 500 subsequently corrected by 16% in two months"

The absolute volue of margin debt doesn't have anything to do with the market direction. The 10 month roc in RRs (proxy for real-output) fell 9 percentage points from Arpil - May 2010. This year the deceleration will be much slower. This is a buy & hold investor market.


Tue, 03/12/2013 - 16:43 | 3323775 g3h
g3h's picture

Where is the Feb data?

Tue, 03/12/2013 - 22:45 | 3324775 spine001
spine001's picture

Just watch the FOMC.

If the easing continues, the market will keep on going up, since the money doesn't have anywhere else to go.

If the easing stops, the market will crash hard and the easing will restart, so there is no alternative but up and away...

Even if it is all hot air...

When the crash comes it will from some world event like NC attacking SC and then nothing will stop the market going down, since the mistrust will accelerate and feed on itself. DJI at 4000 is possible at that point.

As I've said before QE ad infinitum creates instability, watch for the black swan event that brings the card castle down.

Until next time,


Wed, 03/13/2013 - 03:58 | 3325200 dunce
dunce's picture

I am 20% cash because i think a large dip is due. I doubt that i will catch the bottom, but i have to be in cash buy dips or just be a spectator.

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