Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues

recent Forbes article highlights the incredible increase in market leverage since the start of the COVID-19 crisis. There has never been a time in recent history where market leverage has reached these extreme levels. Additionally, highly leveraged market peaks are typically associated with asset bubbles. 

The easy money policies and global central bank actions have prompted one of the longest easy money market rallies in history. Historically low interest rates, US Federal Reserve and global central bank asset-buying programs, and extended overnight credit support have prompted some traders and investors to move into a more highly leveraged position, expecting the rally to stay endless.

Although, the reality of the global market trends may be starting to cause traders and investors to become a bit unsettled. Precious metals, utilities, and bonds have all started reacting to perceived fear related to this extended bullish rally trend recently.

My research team and I believe the current market rally will likely continue as capital shifts away from extended market sectors. We believe the transition away from the new US President and the new policies associated with this change of leadership has already started taking place – which is why precious metals, utilities, and bonds are starting to trend. Yet, we believe the momentum behind this current rally is likely to extend through the end of April and into early May 2021. 

Custom Volatility Index Shows Bullish Trending and Price Volatility Risks

Our Custom Volatility Index chart below shows the US markets have just recently rallied back to previous bullish market trending levels (above 13 on this chart). Once this Custom Volatility Index reaches these levels, we normally expect two market traits to continue.

First, we expect bullish trending because the Volatility Index above 10~11 strongly suggests an extended bullish trend is in place. Secondly, we expect moderate price rotation to take place after the Volatility Index reaches levels above 13~14.

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