Warning: Markets Reaching Extreme Leverage

As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage. This is terrible news because a lot of people are going to lose one heck of a lot of money. According to CNN Money’s Fear & Greed Index, the market is now at the “extreme greed” level and if we go by Yardeni Research on “Investor Intelligence Bull-Bear Ratio,” it’s also at the highest ratio in 30 years.

But, of course… this time is different. Or is it? I continue to receive emails and comments on my blog that the Fed will continue to prop up the markets forever. Unfortunately, there is only so much the Fed can do to rig the markets. Furthermore, the Fed can’t do much to mitigate investor insanity in record NYSE margin debt or the massive $2 trillion in the global short volatility trade.

The $600 billion in NYSE margin debt suggests traders have racked up a record amount of margin debt (33% more since 2007) and the largest short volatility trade in history. By shorting volatility, investors are betting that the VIX Index (Volatility Index) will continue to move lower. A falling volatility index suggests more calm and complacency in the markets.

So, the market will likely continue higher and higher, until it finally POPS. And when it does, watch out.

I’ve put together some charts showing the extreme amount of leverage in the markets. While this leverage may increase for a while, at some point the insanity will end in one heck of a market correction-crash.

The Commercial Banks Are Betting On Much Lower Oil Prices

As I mentioned in previous articles and my Youtube video, Coming Big Oil Price Drop & Market Crash, the Commercial banks have the highest net short positions in the oil market in over 20 years. In the video, I explained how the Commercial net short position in oil increased from 648,000 to 678,000 contracts in just one week. Well, according to the most recent COT Report (Commitment of Traders), the Commercials outdid themselves this week by adding an even larger amount of short contracts.

The Commercial net short position in the oil increased by a stunning 58,0000 contracts to another record high of 732,000:

If we look at the “Commercial” long and short positions at the bottom of the chart, we can see that the total short contracts increased to 1,486,922 while their longs fell to 755,208. So, the Commercials added a 46,000 more shorts and reduced their longs by roughly 12,000 contracts. Furthermore, the Commercials are only 34% Bullish about the current oil price while the Large Speculators are 85% Bullish.

When the Commercials hold a very large net short position in commodity, metal or asset, that normally indicates a correction will shortly take place. Especially, when the Commercials hold the largest short position in oil, going back for more than 20 years:

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Cynthia Decker 3 years ago Member's comment

Good article, very well done. Interesting comparison between $UNH and $BITCOMP. But I'd say the former is a far safer bet. Plus #bitcoin has been crashing for the past month.