Rise in Leverage Points to Higher Stock Prices

Today's chart of the day comes to us from Mary Ann Bartels over at Bank of America/Merrill Lynch. Bartels believes that the recent rise in margin debt is an optimistic sign for the market and compares this current environment to June 2003 and November 2009. In each of those instances, year-over-year margin debt growth turned positive after prolonged periods of declines. Three months later, the S&P500 was up 6.1% after '03 and 4.9% after the '09 increase in debt:

Bartels via WSJ:

"Leverage can be used as a sentiment indicator as it is related to investor confidence. It tends to be correlated to the direction of the equity market – investors are likely to gain confidence and add leverage when the equity market is going up and vice versa. The current reading shows that investors are becoming more confident in the market, which supports further upside."

This is an interesting take on margin levels. But to me it's just another mixed signal that we're getting from US Equities markets. I'm still pretty neutral on the space and feel it's probably best to look elsewhere at better trending markets. You can't be afraid to get creative. Check out what this guy is doing.

Source:

Bullish Sign for Stocks: Leverage is Up (WSJ)

Tags: $SPX $SPY