Well, if anything can call a top, this news is definitely on the mark. As the market begins to slide, those whose equity falls below the margin requirement get a “margin” call. That means either show up at the office with some cash or marginable securities or we will close out sufficient securities to make your “call”. When such margin calls become commonplace, the sells feed on themselves as more holders get the calls and the markets really tanks.
If you are not on margin sit back and enjoy the show. The high margin levels and the optimism of the “analysts” is a perfect storm of hope being dashed by reality. Full of hope for making many dollars squashed by getting left with the change.
Key para. in the article.
“It is important to note that it is not the rise in margin debt that is the problem for the markets - it is the fall. When the ultimate reversal begins, and investors are forced to liquidate to meet margin calls, the market begins to feed upon itself. This forced liquidation quickly accelerates downside reversions in equity markets leaving investors little opportunity to react. The last two peaks in margin debts have had nasty outcomes for this very reason.”