/us-market-bubble-detector

Bubble Detection Quick Reference

Daily Checklist (Complete in 5 Minutes)

Morning Routine (Before Market Open)

□ Step 1: Update Bubble-O-Meter (2 minutes)
   - Score 8 indicators on 0-2 scale
   - Confirm risk budget based on total score

□ Step 2: Position Management (2 minutes)
   - Update ATR trailing stops
   - Check if stair-step profit-taking targets reached
   - Determine new entry eligibility

□ Step 3: Signal Confirmation (1 minute)
   - Media/social media trends (Google Trends, Twitter)
   - Major indices' distance from 52-week highs
   - VIX & Put/Call ratio

Emergency Assessment: 3 Questions

When uncertain about investment decisions, answer these 3 questions:

Q1: "Are non-investors recommending?"

• YES → Mass penetration complete, likely late stage
• NO → Still early-to-mid stage

Q2: "Has the narrative become 'common sense'?"

• YES → Euphoria stage, dissent socially unacceptable
• NO → Skeptical views still tolerated, healthy state

Q3: "Is 'this time is different' the mantra?"

• YES → Historically typical bubble sign
• NO → Healthy caution still functioning

All 3 YES → Critical zone, prioritize profit-taking/exit

Action Matrix by Bubble Stage (REVISED v2.1)

Note: Maximum score reduced from 16 to 15 points (Phase 2: max 12, Phase 3: max 3)

Quick Scoring for 8 Indicators

1. Mass Penetration

0 points: Investors only
1 point: General awareness but investment still limited
2 points: Taxi drivers/family recommending

2. Media Saturation

0 points: Normal coverage level
1 point: Search trends 2-3x
2 points: TV specials/magazine covers, searches 5x+

3. New Entrants

0 points: Normal account opening pace
1 point: 50-100% YoY increase
2 points: 200%+ YoY, beginner flood

4. Issuance Flood

0 points: Normal IPO count
1 point: 50% increase in IPOs/related products
2 points: Low-quality IPOs, theme ETF proliferation

5. Leverage

0 points: Normal range
1 point: Margin balance 1.5x
2 points: All-time high, funding rates elevated

6. Price Acceleration

0 points: Near historical median
1 point: Exceeds 90th percentile
2 points: 95-99th percentile or accelerating

7. Valuation Disconnect

0 points: Explainable by fundamentals
1 point: High valuation but explained by growth expectations
2 points: Completely "narrative"-dependent, fundamentals ignored

8. Correlation & Breadth

0 points: Only some leaders rising
1 point: Sector-wide spread
2 points: Even low-quality/zombie companies rallying

Key Data Sources

Instantly Checkable Indicators

API-Accessible Auto-Retrieval

# Example: Google Trends (pytrends)
from pytrends.request import TrendReq
pytrends = TrendReq()
pytrends.build_payload(['SPY', 'stock market'])
data = pytrends.interest_over_time()

# Example: VIX (yfinance)
import yfinance as yf
vix = yf.Ticker('^VIX')
current_vix = vix.history(period='1d')['Close'].iloc[-1]

Profit-Taking Strategy Templates

Template 1: Stair-Step Profit-Taking (Conservative)

Position: $10,000 initial investment
Targets:  +20%, +40%, +60%, +80%

+20% ($12,000) → Sell 25% = $3,000 secured
+40% ($14,000) → Sell 25% = $3,500 secured
+60% ($16,000) → Sell 25% = $4,000 secured
+80% ($18,000) → Sell 25% = $4,500 secured

Total profits: $15,000 (+50% equivalent)

Template 2: ATR Trailing (Aggressive)

def calculate_trailing_stop(current_price, atr_20d, bubble_phase):
    """
    Calculate trailing stop based on bubble stage

    bubble_phase: 'normal', 'caution', 'euphoria', 'critical'
    """
    multipliers = {
        'normal': 2.0,
        'caution': 1.8,
        'euphoria': 1.5,
        'critical': 1.2
    }
    multiplier = multipliers.get(bubble_phase, 2.0)
    stop_price = current_price - (atr_20d * multiplier)
    return stop_price

# Usage example
current_price = 450.0
atr_20d = 10.0  # Average True Range over 20 days
bubble_phase = 'euphoria'

stop = calculate_trailing_stop(current_price, atr_20d, bubble_phase)
print(f"Trailing Stop: ${stop:.2f}")
# Output: Trailing Stop: $435.00

Template 3: Hybrid (Recommended)

Stage 1 (Boom period):
  → Reduce 50% of position via stair-step profit-taking

Stage 2 (Euphoria period):
  → Apply ATR trailing to remaining 50%, follow upside

Stage 3 (Panic signs):
  → Exit immediately when ATR stop hit

Short-Selling Timing Assessment (Critical)

❌ Absolutely NG: Early Contrarian

Reason: Normal for prices to rise 2-3x more after feeling "too high"
Risk: "Markets can remain irrational longer than you can remain solvent"

✅ Recommended: After Composite Conditions Clear

Consider starting when at least 3 apply:

1. □ Weekly chart shows clear lower highs
2. □ Volume peaks out (3 consecutive weeks declining)
3. □ Sharp drop in leverage indicators (margin balance -20%+)
4. □ Media/search trends peak out
5. □ Weak stocks within sector start breaking down first
6. □ VIX surges (+30%+)
7. □ Fed/policy shift signals

Execution Example:

Condition Check:
[✓] 1. Weekly lower highs forming
[✓] 2. Volume declining 3 weeks straight
[×] 3. Margin balance still elevated
[✓] 4. Google search trends -40%
[×] 5. Still broad rally continuing
[✓] 6. VIX +35% surge
[×] 7. No policy changes

→ 4/7 met, shorts consideration OK
→ Small position (25% of normal) for test entry

Common Failure Patterns & Solutions

Failure 1: "Too late" paralysis, missing opportunities

Psychology: Regret aversion (fear of being late) Solution:

• Conduct Bubble-O-Meter when feeling "too late"
• Score ≤8: Small position entry OK
• Score ≥9: Correct to stay out

Failure 2: Re-entry after profit-taking (buying high)

Psychology: Hindsight bias ("knew it would go higher") Solution:

• 72-hour no re-entry rule after profit-taking
• Re-entry decisions only after Bubble-O-Meter check

Failure 3: Can't take profits due to "still rising"

Psychology: Greed + Overconfidence Solution:

• Automate stair-step profit-taking (pre-set limit orders)
• Aim for "satisfaction," abandon "perfection"

Failure 4: Too-early shorts

Psychology: Subjective "obviously too high" judgment Solution:

• Mechanically verify composite conditions
• Wait for minimum 3 conditions to clear

Emergency Response Flowchart

Detect market volatility
    ↓
Q: Have positions?
    ↓YES
Q: Down -5% or more?
    ↓YES
Q: ATR stop reached?
    ↓YES
→ Sell immediately (no debate)

    ↓NO (Stop not reached)
Q: Bubble-O-Meter score 13+?
    ↓YES
→ Consider 75%+ profit-taking

    ↓NO (Score ≤12)
Q: VIX surge +30%+?
    ↓YES
→ 50% profit-taking, tighten remaining stops

    ↓NO
→ Business as usual, continue calm observation

Golden Rules (10 Commandments to Post on Wall)

1. See process, not price

2. When taxi drivers talk stocks, exit

3. "This time is different" is always the same

4. Mechanical rules protect psychology

5. Short after confirmation, take profits early

6. When skepticism hurts, the end begins

7. Aim for satisfaction, abandon perfection

8. Bubbles last longer than expected, collapses are faster

9. Leverage is an express ticket to ruin

10. "Markets can remain irrational longer than you can remain solvent"

Resources for Further Learning

Books

• "Manias, Panics, and Crashes" - Charles Kindleberger
• "Irrational Exuberance" - Robert Shiller
• "The Alchemy of Finance" - George Soros

Research

• Hyman Minsky's Financial Instability Hypothesis
• Classic papers in Behavioral Finance

Data & Tools

• TradingView: Charts and technical indicators
• FRED (Federal Reserve): Economic indicator time series
• Finviz: Screening and heatmaps
• Google Trends: Social trends

Last Updated: 2025 Edition License: Educational and personal use only, redistribution prohibited