Looking for Greed to Banish Fear

Two basic emotions---fear and greed---dominate the stock market. When stock traders are fearful, they sell everything they can, take their money out of the stock market and run to the nearest U.S. Treasury. On the other hand, when investors are greedy, they buy everything they can using their own money, and then they try to buy everything they can using their broker's money. But how can you tell when investor sentiment is shifting from fear to greed? Answer: Watch margin debt levels

Buying Stocks on MarginBuying stocks using borrowed money from your broker is called buying stock on margin. Current SEC regulations allow you to borrow up to 50 percent of the value of a stock you wish to buy---assuming your broker feels you are worth the risk, that is---which gives you up to 2:1 leverage when you buy a stock.You can learn a lot about how confident stock traders are in the stock market by monitoring the level of margin debt in the market, and the easiest way to do that is by watching the NYSE Margin Debt numbers. NYSE Margin DebtEvery month, the New York Stock Exchange (NYSE) releases numbers showing how much money was borrowed on margin to buy stocks on the NYSE. As you can imagine, the amount of stock bought on margin is extremely large, but the total number fluctuates quite a bit based on how confident traders are. When stock traders are confident, they borrow more on margin. When stock traders are less confident, they borrow less on margin.