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The FINRA margin ratios show that speculative activity in margin accounts has reached historic extremes. Margin debt typically grows with market value, yet the ratios of margin debt to both cash-account and margin-account free credit now reveal conditions far beyond normal bull market behavior.
All three ratios have broken out to new highs and have pierced long-term trendlines, indicating extreme leverage among the most active traders. Despite this, each ratio still showds slight remaining headroom to upper long-term trend limits visible on the charts. Historically, these ratios tend to peak and turn down two to six months before major market tops. The current breakouts therefore imply that a market reversal is not yet imminent.
The implication for trading is that … Click here to get the full report.
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