Advisor Perspectives’ Doug Short recently published an update on margin debt, accompanied by several well-made charts. But it only takes one to make the point. 

See below for the relationship between margin debt — money borrowed by retail investors against their stocks and used to buy more stock — where Short has enhanced the visual impact by inverting the margin debt line. As presented here, a downward sloping red line means margin debt is increasing. So when the two lines diverge, that means stock prices and margin debt are both rising. 

The gap between them is thus a measure of the divergence between investor expectations and market reality. Note two things: 1) When the gap grows too large, the lines tend to converge via falling stock prices and shrinking margin debt (usually through involuntary liquidation of leveraged stock portfolios). And 2) Today the gap is wider than it’s ever been. If history is a valid guide, the two lines will shortly cross somewhere around 1,000 on the S&P, or about 50% lower than current levels.

With the S&P 500 index hovering less than 2 percent below its record high, many market participants are calling for a correction of about 10 percent. Marc Faber, editor of The Gloom, Boom & Doom Report, is calling for a little more than that.

“For the last two years, I’ve been thinking that U.S. stocks are due for a correction,” he told CNBC. “But I always say a bubble is a bubble, and if there’s no correction, the market will go up. And one day it will go down, big-time.”

….read more HERE

Also from Marc:

Chinese Markets an Accident waiting to happen

“Gold has its own mind,” Jim Rogers says. “Sometimes it moves with the dollar, sometimes it doesn’t.”

Rogers says he’s not so concerned with the daily fluctuations and adds he is still waiting on a buying opportunity.

Looking east, Rogers says he is bullish on the Chinese economy despite recent weaker economic data and continued easing in the country. “I’m bullish on the Chinese markets. My largest stock positions are in Asia – China, Japan, Russia,” he says. “I see more real estate bankruptcies in China, there’s a lot of debt buildup in China. But at the moment, I’m still there and I even bought more last week.”

Rogers also has a keen interest in the Russian stock market. Tune in now to get his thoughts on the Federal Reserve and why he thinks they may not even raise interest rates this year.

……view the 4 minute interview with Jim HERE

Stock Trading Alert originally sent to subscribers on April 30, 2015, 6:20 AM.

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,140, and profit target at 1,980, S&P 500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes lost 0.4-0.6% on Wednesday, extending their short-term fluctuations, as investors reacted to FOMC Rate Decision announcement, among others. Our yesterday’s bearish intraday outlook has proved accurate. The S&P 500 index continues to fluctuate along the level of 2,100, as it remains relatively close to its April 27 all-time high of 2,125.92. The nearest important level of resistance is at around 2,120-2,125. On the other hand, support level is at 2,095-2,100. There have been no confirmed negative signals so far. However, we can see negative technical divergences:

Larger Chart

Expectations before the opening of today’s trading session are negative, with index futures currently down 0.4%. The

main European stock market indexes have lost 0.1-0.3% so far. Investors will now wait for some economic data announcements: Initial Claims, Personal Income, Personal Spending at 8:30 a.m., Chicago PMI at 9:45 a.m. The S&P 500 futures contract (CFD) trades within an intraday downtrend, as it fluctuates close to yesterday’s low. The nearest important resistance level is at around 2,100-2,115, as the 15-minute chart shows:

Larger Chart

The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it trades lower. The nearest important support level is at around 4,450. On the other hand, level of resistance is at 4,500, among others, as we can see on the 15-minute chart:

Larger Chart

Concluding, the S&P 500 index continued to fluctuate on Wednesday, as investors reacted to FOMC Rate Decision release. There have been no confirmed negative signals so far. However, we maintain our speculative short position (2,098.27, S&P 500 index), as we expect a downward correction or an uptrend reversal. Stop-loss is at 2,140, and potential profit target is at 1,980. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts

A recommendation to move to cash.

Economist Steen Jakobsen, Chief Investment Officer of Saxo Bank, believes 2015 will be another “lost year” for the economy. And he predicts the Federal Reserve will indeed start to raise rates later this year, surprising the market and taking the wind of out asset prices.

He recommends building cash and waiting to see how the coming storm — which he calls the “greatest margin call in history” — plays out…..continue reading the transcript, or view youtube HERE