SPDR S&P 500 (SPY)

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There are many forms of stock market leverage, but margin debt is the only form that is reported on a monthly basis. So it serves as a sentiment indicator of stock-market leverage.

This leaves us with conflicted sentiments in the market:

On one hand, short-sellers fear a rally – market optimism – and so they don’t short the market, though they might short individual stocks for company-specific reasons.
On the other hand, investors are deleveraging because they fear a sell-off and don’t want to get hung out to dry.
This raises a question. Why is one group of risk-takers fearing a rally, while the other group of risk-takers is fearing a sell-off?

In this market that has been coddled for so long, and where fundamental considerations have long gone out the window because they’ve become irrelevant, maybe it’s the fear of the next surprise that can go in either direction, whether it’s a tweet or a Chinese announcement or something spreading from a tangled-up repo market, or whatever.

But even “fear” may not be the right word because the CBOE Volatility Index (VIX) is bouncing along at very low levels, below 14 at the moment, where “complacency” rules, and almost as low as early October last year, just before all heck broke loose.