Aussi asked: I just read an article about margin debt as a percentage of GDP. It compares margin debt to a 15 month moving average. I was wondering if margin debt is one of the tools you use in determining market direction?

Simple answer - yes.

The bigger question is how.

Two ways:

1. Identifying bullish opportunities near market bottoms.
2. Identifying bearish danger near market tops.

Both work, but both are blunt instruments. In other words, you cannot expect a measure like this to pinpoint anything. As it relates to right now, however, I do agree that it highlights when things have gotten out of hand. Excessive margin is simply not a good thing!

Data: I have NYSE margin from 1959, and I use FINRA margin from the last date that the NYSE was posting margin.

I do track margin debt as a percentage of GDP as you mentioned. It is one way. Another, more simple approach, is to simply calculate the rate-of-change (ROC) based on various lookbacks (I examine 3, 6, 9 and 12 month). The latter is most instructive.

Bearish Signals

1. Any value of 50% or higher is considered a warning.
2. Any value below 50% after being above that threshold is considered extremely bearish.

These are the last four extremely bearish warnings.

Date       Signal
1/31/2000  Warning
2/29/2000  Warning
3/31/2000  Warning
4/30/2000  Warning
5/31/2000  EXT_BEAR
6/30/2007  Warning
7/31/2007  Warning
8/31/2007  Warning
9/30/2007  EXT_BEAR
3/30/2021  Warning
4/30/2021  Warning
5/30/2021  Warning
6/30/2021  Warning
7/30/2021  EXT_BEAR
4/30/2026  Warning
5/30/2026  Warning
6/30/2026  EXT_BEAR

Anyone with even a relatively short-term memory should be able to recognize these dates has helpful in identifying danger ahead!