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How Much More Extreme Can Markets Get?

These charts help us understand that a top is not just price, but a reversal in extremes of margin debt, valuation and sentiment.

In blow-off tops, extremes of valuation, complacency and margin debt can always shoot beyond previous extremes to new extremes. This is why guessing when the blow-off top implodes is so hazardous: extreme can always get more extreme.

Nonetheless, extremes eventually reverse, and generally in rough symmetry with their explosive rise. Exhibit 1 is margin debt: NYSE Margin Debt Hits a New Record High (Doug Short)

Note the explosive rise in margin debt in the past few months:

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