Margin debt has joined the list of bear market warning flags as it cratered to start the year. As we have previously noted, peaks in margin debt have historically preceded or coincided with market tops. However, drops in margin debt have been especially meaningful following exponential increases, such as in 2000 and 2007. The fact that today’s decline comes on the heels of a similar exponential rise is just one more reason to proceed with caution in this high-risk market.
