Another Failure in the Market Structure-Again Greed is Behind It

Greed can be summed up as the root cause of all bubbles. Yesterday I spoke a little about the ceteriorating mrket structure that will ake any eventual collapse in the market a very ugly site indeed. I've also spoken about how you can visibly see the greed on the charts as the "buy the dip " crowd won't allow the market to properly correct, this was in charts that compared price to the 50-day moving average through QE1 and QE 2 with QE2 having only 1 serious correction as QE1 had many. The reason is the buy the dippers step in before a proper Bull Market correction can occur.

Now we have more evidence of the greed forming a bubble that will eventually burst. As I read this morning, there is one entity that can, will and does fight the Fed and usually wins, it's the market itself.

So  I present this chart...

In red you see Total Margin Debt which shows traders leveraging up on margin to enhance gains/returns, this is also a very dangerous scenario, especially when the market's supporting mechanisms have been removed and liquidity has been removed. Anyone who has traded an illiquid market such as After Hours or stocks that have less then 50k of total daily volume know that liquidity keeps the bid/ask spread at a healthy rate, when liquidity disappears, that spread widens. I've even had times when I couldn't get out of a position for 45 minutes due to a complete lack of liquidity and watched my profits erode. This trend is another sign of a bubble and an exceedingly dangerous one, one in which we may have never seen such poor market structure beneath it. Right now, risk management is key and diversifying your portfolio long and short may be wise as well. We are now at new recovery highs for margin debt, but look back to the top of 2007 and compare margin debt then. This is trouble with a lit fuse, how long that fuse is, I don't know but I'll be watching and doing my best to alert you to changes that you need to be aware of as you are now trading in a market that no one has ever traded before. There are risks as I've pointed out, but for those who are on top of developments and make preparations, the rewards may also be like those we have never seen before.

Feel free to send me your thoughts. If you'd like them published anonymously, let me know.