Extremes eventually reverse, and generally in rough symmetry with their explosive rise and we are reaching such extremes in valuation, complacency and margin debt.
- the explosive rise in margin debt in the past few months,
- the diminishing returns of more margin debt at tops,
- China’s Shenzhen stock exchange P/E ratio (sentiment) reaching extremes of euphoria and
- a diverging ADX (a measure of trend strength) and the MACD rolling over into a sell signal, both suggesting strongly that the Shenzhen Composite bubble has burst.
When the speculative frenzy dissipates, central banks will be the only buyers left and unless the Fed increases its balance sheet from $4.5 trillion to $14.5 trillion in a matter of months, even central bank manipulation will be swamped by sellers exiting bursting-bubble markets.
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