U.S. Stock Market - Record High, But NYSE Margin Debt Declines

The Dow Jones Industrial Average posted a new all-time closing high on Wednesday of last week (just barely), but the intra-day record high for the DJIA, as posted in early April, was never violated. Except for the New York Composite Index, no other major index saw record highs last week on either basis, intra-day or closing. In fact, the Russell 2000 Index is still about 7% below its record high as posted on March 4.

For the bearish camp, the recent rotation out of small-cap stocks into large-cap stocks has probably been frustrating. However, the really great bull markets almost always end with one last rotation into the so-called "blue chip" large-cap names. 

How are we to know when this dance is really done? I wish I could write that there was a magic formula and that I had it! Unfortunately, there is no magic formula, just a trail of bread crumbs that may show the way.

I've attached two charts here that may suggest that the music has already stopped. Weekly chart sell signals were triggered by my computer trading system at Friday's close in the blue chip drug giant Johnson & Johnson (JNJ) and also in the Dow Jones Utility Average.

Johnson & Johnson Weekly Bar Chart with Computer-generated Buy & Sell Signals

Dow Jones Utility Average with Computer-generated Buy & Sell Signals

It may be worth noting that NYSE Margin Debt exploded in recent months to a record high $465.72 billion as reported at the end of February 2014. Equally important is the fact that Margin Debt had expanded for eight straight months between July 2013 and February 2014 before finally contracting in March (the latest reporting period) by $15.44 billion to $450.28 billion. Movements in NYSE Margin Debt as plotted against the S&P 500 Index show a 96% correlation coefficient. I believe it was the great Stan Weinstein (author of The Professional Tape Reader) who once said that expanding Margin Debt is bullish for stocks (even at record levels), while contracting Margin Debt is bearish. This first significant monthly downtick for Margin Debt in March (as reported by the NYSE last week) may actually represent another important clue that the bull market in U.S. stocks is over!

Also, a daily chart sell signal was triggered on Friday in the Dow Jones Industrial Average ETF, better known as the Dow Diamonds (symbol DIA). 

In the interest of full disclosure, I currently hold a significant position in the double-short S&P 500 ETF, symbol SDS, in one of my managed accounts.

Dow Jones Industrial Average ETF (DJIA Diamonds DIA) Daily Bar Chart