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)...
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at a rate that has trigger contrarian sell signals as its rapidity is a 2-standard-deviation rise...
[5]
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