NEW YORK (TheStreet) -- High margin debt and low levels of cash may mean that the stock market will pop at any time.
The New York Stock Exchange measure of margin debt set an all-time high of $466 billion in February, and the latest reading is $460 billion for July. Meanwhile, the American Association on Individual Investors Asset Allocation Survey shows that the level of cash was at a 14-year low at 16% in August.
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The NYSE measure of margin debt has tracked the ups and downs of the stock market very well. The chart below sends a clear message -- margin debt rises with the S&P 500 and declines with the S&P 500. If margin debt starts to decline, so should the S&P 500.
Let's take a look at the daily chart for the S&P 500:
Courtesy of MetaStock Xenith
The daily chart for the S&P 500 shows the index below its 21-day simple moving average at 1990.76 with declining 12x3x3 daily slow stochastics after setting an all-time intraday high at 2011.17 on Sept. 4. The 50-day and 200-day simple moving averages are 1972.59 and 1888.04, respectively.
In my last post covering the S&P 500 on Sept. 27, the daily chart was positive but overbought with a close just above 2000 for the first time ever.
At the beginning of the year, I predicted that all major averages would at least weaken to tests of their 200-day simple moving averages. The Dow Jones Industrial Average traded as low as 15340.69 on Feb. 5, which was below its 200-day then at 15478.54. Today the average is 17010. The Russell 2000 has been trading back and forth around its 200-day April 15 with the average now at 1147.