Surging margin debt, oil rig recovery, elevated sentiment

by Troy

Surging margin debt

Margin debt has surged more than 50% over the past 8 months (since March 2020 bottom).

All historical cases of such aggressive positioning occurred near 1-2 year market tops. This happened near the start of the 1973-1974, 2000-2002, and 2007-2009 bear markets. The June 1983 historical case was followed by a 1 year-long stock market correction:

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Oil rig recovery

Crescat Capital’s Kevin Smith noted that the U.S. oil rig count has stabilized near the lowest level in a decade:

Total World Oil & Gas Rig Count paints an even clearer picture: energy supply is at a multi-decade low. This should be bullish for energy in 2021, especially as the global economy recovers:

Crude oil usually pushed higher over the next 3 months when the U.S. oil rig count jumped from an extremely low level:

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Sentiment

Sentiment is elevated: AAII Bulls is extremely high while AAII Bears is extremely low.

The gap between AAII Bulls & Bears is at the highest level since January 2018, when stocks tanked and VIX spiked. However, such bullish AAII readings was not consistently bearish for stocks in the past:

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