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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (31211)	10/23/1999 8:09:00 PM
From: Trumptown	Respond to of 99985

From an earlier post: "The current short interest for Standard and Poor's Depositary Reciepts (SPY - 129.00), a security that allows investor to go long or short the S&P 500 Index (SPX - 1283.61), has reached approximately 29,000,000 contracts from 21,000,000 contracts last month. This means that investors have reached a pinnacle of pessimism for the outlook of the SPX. This record level of short interest is the highest seen since October 1998, which is just before the market began to rally. This combination of investor pessimism and potential for a short-covering rally are healthy signs for the market." Margin works both ways (long and short)...so , I believe the additional margin, brought on by debt is contributing to the overall volatility of the market and is not necessarily an indicator of anything (other than 'gamblers fever')...margin debt itself can (and is) used short as well as long...the trick is to be on the right side of the curve... Once this week passes, seasonality favors the long side... SR

To: Don Green who wrote (31211)	10/23/1999 8:23:00 PM
From: Matthew L. Jones	Read Replies (2) \| Respond to of 99985

Let me offer this perspective to margin debt increase. Suppose the average investor has a cash and a margin account. Let's say he had $25,000 in June and subsequently bought $25,000 in stocks. Let's even say that he bought all the value stocks that the wise and wonderful stock brokers say he should have in his fully diversified portfolio. And let's even say that like a "smart investor" he bought the dip modestly when his stock dipped a little. Let's say that he "borrowed" and additional $5,000 to pick up a few bargains. Now let's say its 4 months later and his great "value" stocks have taken a 30% beating (if he's lucky). Let's further assume he is being a good boy or girl and he is "buying and holding". His portfolio net equity which started at $25,000 has been reduced to $16,000. That means that his margin debt as a percentage of his equity is now 31.25% as opposed to the modest 20.00% where he started. It is quite conceivable to me that this phenomenon would skew margin debt as a percentage of total portfolio net equities to the upside, when in fact additional margin borrowing had theoretically not been increased. The probable case is a little of both, however, the steady decline in most stock prices over the past 20 months has no doubt given the appearance of an unreasonable increase in margin debt. Just a thought to consider. Matt