- id
- einstein-research-bubble
- name
- Einstein Research — Market Bubble Risk Detector
- description
- Evaluates market bubble risk through quantitative, data-driven analysis using a revised Minsky/Kindleberger framework. Prioritizes objective metrics over subjective impressions to prevent confirmation bias and support practical investment decisions.
- version
- 1.0.0
- author
- DaVinci
- last_amended_at
- null
- trigger_patterns
- []
- pre_conditions
- git_repo_required
- false
- tools_available
- []
- expected_output_format
- natural_language
Market Bubble Risk Detector
Overview
This skill evaluates market bubble risk through a quantitative, data-driven analysis based on a revised Minsky/Kindleberger framework. It prioritizes objective metrics over subjective impressions to prevent confirmation bias and support practical investment decisions.
Core Principles:
- Data over Narrative: Relies on measurable data, not just "it feels frothy."
- Composite Score: Generates a score from 0-100 to quantify bubble risk.
- Multi-Factor Model: Incorporates sentiment, valuation, leverage, market structure, and new issuance data.
- Action-Oriented: Provides clear thresholds for tactical adjustments (e.g., raising cash, hedging).
When to Use This Skill
Explicit Triggers:
- "Are we in a stock market bubble?"
- "Analyze the risk of a market crash."
- "Is the market overvalued?"
- "Should I be taking profits?"
- User asks about "bubble risk," "market froth," "irrational exuberance," or "Minsky moment."
Implicit Triggers:
- User expresses anxiety about high valuations or a rapid market run-up.
- User is considering de-risking their portfolio.
Workflow
Step 1: Execute the Data Collection and Analysis Script
The bubble-detector CLI tool automates the entire process.
bubble-detector runThe script performs the following actions:
- Fetches Data: Collects data for each of the 7 quantitative indicators.
- Put/Call Ratio (CBOE) - VIX Index (CBOE) - Margin Debt (FINRA) - Market Breadth (% Stocks > 200d MA) - IPO Issuance (e.g., from a public data source) - Retail Volume as % of Total - Forward P/E Ratio vs. Historical Average
- Normalizes Indicators: For each indicator, it calculates a percentile rank over the last 5 years. A rank of 100 means the indicator is at its most "bubbly" level in 5 years.
- Calculates Composite Score: A weighted average of the normalized indicator scores.
- Sentiment (Put/Call, VIX, Retail Volume): 40% - Leverage (Margin Debt): 20% - Market Structure (Breadth): 20% - Valuation & Issuance (P/E, IPOs): 20%
- Generates Report: Outputs a JSON file and a Markdown summary.
Step 2: Analyze the Report
JSON Output (bubble_report_YYYY-MM-DD.json):
- Contains the raw data, normalized scores for each indicator, and the final composite score.
Markdown Report (bubble_report_YYYY-MM-DD.md):
- Overall Bubble Score: e.g., "78 / 100 (High Risk)"
- Indicator Dashboard: A table showing the current value and normalized score for each of the 7 indicators.
- Key Drivers: Highlights which indicators are contributing most to the high score.
- Historical Context: Compares the current score to levels seen before previous market corrections.
- Recommended Posture: Translates the score into a tactical recommendation.
Interpretation & Recommended Actions
The composite score maps to specific risk postures:
- 0-40 (Low Risk - "Accumulate"):
- *Characteristics*: Fear is high, valuations are reasonable, leverage is low. - *Action*: A good time to be deploying capital and taking on risk.
- 41-60 (Moderate Risk - "Cautious Accumulation"):
- *Characteristics*: Market is healthy but not cheap. Some signs of optimism are emerging. - *Action*: Continue to invest, but perhaps with a greater focus on quality.
- 61-80 (High Risk - "Hold & Hedge"):
- *Characteristics*: Greed is prevalent, valuations are stretched, breadth may be narrowing. - *Action*: Hold existing positions, but stop new aggressive buying. Consider adding hedges (e.g., puts) or raising a small amount of cash.
- 81-100 (Very High Risk - "Distribute & Protect"):
- *Characteristics*: Euphoria, extreme valuations, high leverage, widespread speculation. - *Action*: Systematically take profits from high-beta positions. Raise significant cash (e.g., 20-40%). Actively hedge the remaining portfolio. This is the time to be selling to the optimists.
Important Considerations
- Not a Timing Tool: This skill indicates *when risk is high*, not the exact top of the market. Bubbly conditions can persist for months.
- Context is Key: Always present the score in the context of the underlying indicators. A high score driven by stretched valuations is different from one driven by extreme sentiment.
- No Panicking: The goal is to make small, rational adjustments to risk exposure, not to sell everything in a panic.