While the market has nowhere yet to an immediate crash into a prolonged bear market like 2000 or 2008, we are seeing more and more signs similar to the frenzy activities that preceded to the top during the dot.com crash and the housing crisis in 2008. I will share more such signs moving forward to prepare you for what is coming. Be clear, I'm not expecting a bear market will start very soon but if history is any guide, we are probably just 6 months to a year away when a blowoff top is formed, followed by a sustained downtrend. When the next bear market hits, it will likely last for several years, not not in a decade as we have also seen before.
Here is one of the top signs:
Investors had borrowed $814 billion against their portfolios as of late February, so-called total margin debt (TMD), according to data from the Financial Industry Regulatory Authority ("FINRA"). Understandably, During a bull market, margin debt tends to rise as more people want to trade and invest.
But today's levels are well above the historical levels, especially 3 times in the past 20 years when TMD blew off sharply within a short period of time just prior to the epic market crashes. Two of them were the prologue to the famous bear markets: The most recent jump happened back in 2007 before the financial crisis. And the other jump occurred during the Melt Up of 1999. In addition, we also saw a similar catapult of TMD prior to the splendid market crash in Mar 2019.
So where will this vertical up move of TMD lead us to? It is a big question mark of course at the moment but keep this in mind as such kind of fast debt accumulation is never a bullish sign. Sooner or later, it will bite those who blindly chase highs!
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