“They don’t ring a bell at the top,” is a popular phrase among those who think market timing is bunk. There may not be “A” bell but there sure are plenty of indicators ringing right now for those who choose to listen to them (see yesterday’s post: “How The Stock Market Is Potentially Forming A Major Top).

The chart below comes from Doug Short of Advisor Perspectives (hat tip, Kimble Charting). It shows the S&P 500 Index overlayed with net margin debt. Doug explains:

Positive net worth is the situation when investors have little money borrowed and plenty of cash in their brokerage accounts (2003 & 2009).

Negative net worth is the situation when investors have little large amounts of money borrowed (on margin) and little cash in their brokerage accounts (2000, 2007, 2011 & now).

The only time net worth has ever been as negative in the past as it is today was at the top of the internet bubble. 2007 and 2011 came pretty close to today’s levels and both led to painful declines. Ding ding.

margin debt