CHART OF THE DAY: Gundlach Warns NYSE Margin Debt Is In 'The Scary Zone'

Traders are borrowing more than ever to leverage up their bets on the stock market.

Some fear that this is a sign of a bubbly stock market that’s doomed to crash.

Others argue it’s a more benign coincident indicator and at least partially reflective of the increasing presence of hedge funds.

“It is in the scary zone,” said DoubleLine Funds’ Jeffrey Gundlach during a webcast on Tuesday. “If and when it hooks over, that’s when you’re likely to see a double-digit decline in market indexes.”

While he’s not predicting imminent doom for stocks, he encourages us to be on the look out for a reversal.

Gundlach has previously characterised margin debt as both a cause and effect of the market rally.

Margin debt could very well continue to rise with the stock market. But it has a nasty way of adding to the downward momentum when stocks sell.

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