What Investor Risk Tolerance Today Suggests for Stocks Tomorrow
NYSE margin debt "generally waxes and wanes with the trend in stock prices"
by Bob Stokes
Updated: August 13, 2019
No one wants to lose money, but countless investors are willing to take that risk in order to reap the potential rewards of participating in financial markets, like stocks.
Sometimes though, these investors start to get nervous. Their risk-o-meter starts to move lower.
One way to measure investors' tolerance for risk is to look at the relative performance of various indexes.
A little history will provide an example: The KBW Bank Index made its all-time high in February 2007 -- well before the DJIA's October 2007 high. In January 2008, our Elliott Wave Financial Forecast noted that the KBW Bank Index's underperformance confirmed the presence of a...
"big turn from a full-steam-ahead, collective embrace of risk to a new mood of fear and risk aversion."
Boy, did that turn out to be the case with the worst of the 2007-2009 bear market still ahead at the time that issue of the Elliott Wave Financial Forecast published.
Let's now return to 2019 with an example of another way to gauge investors' risk tolerance.
The August Elliott Wave Financial Forecast showed this chart and said:
NYSE margin debt is another tried-and-true measure of risk tolerance. This measure generally waxes and wanes with the trend in stock prices. Although, as The Elliott Wave Theorist noted in 1980, declines in monthly margin debt in conjunction with an advancing market can be the "kiss of death" to a bull trend. The earlier that the margin debt contraction begins relative to a stock market rally, the more important the eventual market peak tends to be.... The chart shows [that] NYSE margin debt peaked at a record high of $669 billion in May 2018, 14 months ago.
The question is: How does the time length of this divergence stack up historically?
Well, the August Elliott Wave Financial Forecast provides you with that historical context. Suffice it to say that the length of the current divergence is rare.
Review our latest analysis and forecasts for the U.S. stock market via a 30-day risk-free trial. Learn more just below...
"Must-See" Chart Set-Ups in These 4 Major Financial Markets
Stocks -- Bonds -- Gold -- Silver
Technically speaking, all four markets are either at or approaching pivotal junctures -- and now is the time to get up to speed -- if you want to embrace opportunity or avoid risk.
Yes, our Elliott wave experts provide you with the intermediate- and long-term outlook for all four markets.
Yet, just as importantly, we keep you updated on the near-term moves so you'll be prepared for imminent opportunities -- or heightened risk -- as the case may be.
Take advantage of our risk-free trial right away. Learn more just below …
Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns
Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
As featured in:
You can be ready for risks and opportunities that catch most investors by surprise
Risk-Free, Start Your Subscription Now
for 1 month of unparalleled market insights