With market dynamics continuing to be virtually identical to the start of last year, many struggle to find what incremental events at the margin may determine what is not priced in by the market (because apparently everything else is). As we pointed out recently [5], one such potential factor is that short interest on the NYSE has plunged to practically multi-year lows. And yet the melt up has continued indicating the short covering has come and gone, and at this point it is incremental buying that is probably driving stocks. Yet even that may be ending: since we are looking at the margin, it makes sense to present David Rosenberg's observations on what it is that he is looking at the moment, which appropriately enough, is NYSE margin debt, whose 12 month trailing average has just turned negative: traditionally an important inflection point.
From Gluskin-Sheff's David Rosenberg:
IT'S ALL AT THE MARGIN!
When the experts say that the stock market is a leading indicator, maybe they are referring to margin debt — seeing as this provides a bit of a pulse on the investor appetite for risk. The 12-month trend in margin debt slipped into negative terrain in December 2000 and then did it again in April 2008. Both times, heeding this trend paid dividends in the sense that they both led downturns in both economic activity and in equity market valuation. The YoY trend just slipped into negative terrain last November for the first time since 2009 —just something to consider.
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