In technical analysis, a theory stating that large cash balances on investors' brokerage accounts are an indicator of market uptrends. The theory contends that investors with cash balances in their accounts are extremely likely to eventually use that cash to buy securities. This increases demand for securities, which in turn drives up prices. Credit balance theory contrasts with debit-balance theory, which contends the exact opposite.
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The technical theory that holds that the level of credit balances in investors' brokerage accounts can be used to forecast market trends. Most technical analysts consider large credit (cash) balances bullish because credit balances represent potential buying power that will eventually be used for purchasing securities. Compare debit-balance theory.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.