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Follow-up on Margin Debt

Follow-up on our “Notes From The Field” post in March 2021 – Margin Debt. 

Three months ago we highlighted the contrarian sentiment indicator that has flagged three major market tops (1972, 2000, 2007) since 1970. With the most recent data, the year-over-year change in margin-debt has risen above 55%. Once this threshold is exceeded, it is warranted to watch for a decline of the indicator as this signals that margin calls are being triggered and a (significant) deleveraging process has begun.

At Tramondo, monitoring the market sentiment in terms of margin debt levels is crucial to our hedging framework and belongs to our second pillar (out of four) “market sentiment”. Thus, one of our longer-term oriented indicators has changed from a yellow to a red flag and underpins the current buying frenzy and complacency of market participants.

Chart 1: Margin Debt April 2021

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