US Market Bubble Detection Skill (Revised v2.1)

Key Revisions in v2.1

Critical Changes from v2.0:

1. ✅ Mandatory Quantitative Data Collection - Use measured values, not impressions or speculation
2. ✅ Clear Threshold Settings - Specific numerical criteria for each indicator
3. ✅ Two-Phase Evaluation Process - Quantitative evaluation → Qualitative adjustment (strict order)
4. ✅ Stricter Qualitative Criteria - Max +3 points (reduced from +5), requires measurable evidence
5. ✅ Confirmation Bias Prevention - Explicit checklist to avoid over-scoring
6. ✅ Granular Risk Phases - Added "Elevated Risk" phase (8-9 points) for nuanced risk management

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When to Use This Skill

Use this skill when:

English:

• User asks "Is the market in a bubble?" or "Are we in a bubble?"
• User seeks advice on profit-taking, new entry timing, or short-selling decisions
• User reports social phenomena (non-investors entering, media frenzy, IPO flood)
• User mentions narratives like "this time is different" or "revolutionary technology" becoming mainstream
• User consults about risk management for existing positions

Japanese:

• ユーザーが「今の相場はバブルか?」と尋ねる
• 投資の利確・新規参入・空売りのタイミング判断を求める
• 社会現象(非投資家の参入、メディア過熱、IPO氾濫)を観察し懸念を表明
• 「今回は違う」「革命的技術」などの物語が主流化している状況を報告
• 保有ポジションのリスク管理方法を相談

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Evaluation Process (Strict Order)

Phase 1: Mandatory Quantitative Data Collection

CRITICAL: Always collect the following data before starting evaluation

1.1 Market Structure Data (Highest Priority)

□ Put/Call Ratio (CBOE Equity P/C)
  - Source: CBOE DataShop or web_search "CBOE put call ratio"
  - Collect: 5-day moving average

□ VIX (Fear Index)
  - Source: Yahoo Finance ^VIX or web_search "VIX current"
  - Collect: Current value + percentile over past 3 months

□ Volatility Indicators
  - 21-day realized volatility
  - Historical position of VIX (determine if in bottom 10th percentile)

1.2 Leverage & Positioning Data

□ FINRA Margin Debt Balance
  - Source: web_search "FINRA margin debt latest"
  - Collect: Latest month + Year-over-Year % change

□ Breadth (Market Participation)
  - % of S&P 500 stocks above 50-day MA
  - Source: web_search "S&P 500 breadth 50 day moving average"

1.3 IPO & New Issuance Data

□ IPO Count & First-Day Performance
  - Source: Renaissance Capital IPO or web_search "IPO market 2025"
  - Collect: Quarterly count + median first-day return

⚠️ CRITICAL: Do NOT proceed with evaluation without Phase 1 data collection

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Phase 2: Quantitative Evaluation (Quantitative Scoring)

Score mechanically based on collected data using the following criteria:

Indicator 1: Put/Call Ratio (Market Sentiment)

Scoring Criteria:
- 2 points: P/C < 0.70 (excessive optimism, call-heavy)
- 1 point: P/C 0.70-0.85 (slightly optimistic)
- 0 points: P/C > 0.85 (healthy caution)

Rationale: P/C < 0.7 is historically characteristic of bubble periods

Indicator 2: Volatility Suppression + New Highs

Scoring Criteria:
- 2 points: VIX < 12 AND major index within 5% of 52-week high
- 1 point: VIX 12-15 AND near highs
- 0 points: VIX > 15 OR more than 10% from highs

Rationale: Extreme low volatility + highs indicates excessive complacency

Indicator 3: Leverage (Margin Debt Balance)

Scoring Criteria:
- 2 points: YoY +20% or more AND all-time high
- 1 point: YoY +10-20%
- 0 points: YoY +10% or less OR negative

Rationale: Rapid leverage increase is a bubble precursor

Indicator 4: IPO Market Overheating

Scoring Criteria:
- 2 points: Quarterly IPO count > 2x 5-year average AND median first-day return +20%+
- 1 point: Quarterly IPO count > 1.5x 5-year average
- 0 points: Normal levels

Rationale: Poor-quality IPO flood is characteristic of late-stage bubbles

Indicator 5: Breadth Anomaly (Narrow Leadership)

Scoring Criteria:
- 2 points: New high AND < 45% of stocks above 50DMA (narrow leadership)
- 1 point: 45-60% above 50DMA (somewhat narrow)
- 0 points: > 60% above 50DMA (healthy breadth)

Rationale: Rally driven by few stocks is fragile

Indicator 6: Price Acceleration

Scoring Criteria:
- 2 points: Past 3-month return exceeds 95th percentile of past 10 years
- 1 point: Past 3-month return in 85-95th percentile of past 10 years
- 0 points: Below 85th percentile

Rationale: Rapid price acceleration is unsustainable

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Phase 3: Qualitative Adjustment (REVISED v2.1)

Limit: +3 points maximum (REDUCED from +5 in v2.0)

⚠️ CONFIRMATION BIAS PREVENTION CHECKLIST:

Before adding ANY qualitative points:
□ Do I have concrete, measurable data? (not impressions)
□ Would an independent observer reach the same conclusion?
□ Am I avoiding double-counting with Phase 2 scores?
□ Have I documented specific evidence with sources?

Adjustment A: Social Penetration (0-1 points, STRICT CRITERIA)

+1 point: ALL THREE criteria must be met:
  ✓ Direct user report of non-investor recommendations
  ✓ Specific examples with names/dates/conversations
  ✓ Multiple independent sources (minimum 3)

+0 points: Any criteria missing

⚠️ INVALID EXAMPLES:
- "AI narrative is prevalent" (unmeasurable)
- "I saw articles about retail investors" (not direct report)
- "Everyone is talking about stocks" (vague, unverified)

✅ VALID EXAMPLE:
"My barber asked about NVDA (Nov 1), dentist mentioned AI stocks (Nov 2),
Uber driver discussed crypto (Nov 3)"

Adjustment B: Media/Search Trends (0-1 points, REQUIRES MEASUREMENT)

+1 point: BOTH criteria must be met:
  ✓ Google Trends showing 5x+ YoY increase (measured)
  ✓ Mainstream coverage confirmed (Time covers, TV specials with dates)

+0 points: Search trends <5x OR no mainstream coverage

⚠️ CRITICAL: "Elevated narrative" without data = +0 points

HOW TO VERIFY:
1. Search "[topic] Google Trends 2025" and document numbers
2. Search "[topic] Time magazine cover" for specific dates
3. Search "[topic] CNBC special" for episode confirmation

✅ VALID EXAMPLE:
"Google Trends: 'AI stocks' at 780 (baseline 150 = 5.2x).
Time cover 'AI Revolution' (Oct 15, 2025).
CNBC 'AI Investment Special' (3 episodes Oct 2025)."

⚠️ INVALID EXAMPLE:
"AI/technology narrative seems elevated" (unmeasurable)

Adjustment C: Valuation Disconnect (0-1 points, AVOID DOUBLE-COUNTING)

+1 point: ALL criteria must be met:
  ✓ P/E >25 (if NOT already counted in Phase 2 quantitative)
  ✓ Fundamentals explicitly ignored in mainstream discourse
  ✓ "This time is different" documented in major media

+0 points: P/E <25 OR fundamentals support valuations

⚠️ SELF-CHECK QUESTIONS (if ANY is YES, score = 0):
- Is P/E already in Phase 2 quantitative scoring?
- Do companies have real earnings supporting valuations?
- Is the narrative backed by fundamental improvements?

✅ VALID EXAMPLE for +1:
"S&P P/E = 35x (vs historical 18x).
CNBC article: 'Earnings don't matter in AI era' (Oct 2025).
Bloomberg: 'Traditional metrics obsolete' (Nov 2025)."

⚠️ INVALID EXAMPLE:
"P/E 30.8 but companies have real earnings and AI has fundamental backing"
(fundamentals support = +0 points)

Phase 3 Total: Maximum +3 points

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Phase 4: Final Judgment (REVISED v2.1)

Final Score = Phase 2 Total (0-12 points) + Phase 3 Adjustment (0 to +3 points)
Range: 0 to 15 points

Judgment Criteria (with Risk Budget):
- 0-4 points: Normal (Risk Budget: 100%)
- 5-7 points: Caution (Risk Budget: 70-80%)
- 8-9 points: Elevated Risk (Risk Budget: 50-70%) ⚠️ NEW in v2.1
- 10-12 points: Euphoria (Risk Budget: 40-50%)
- 13-15 points: Critical (Risk Budget: 20-30%)

Key Change in v2.1:

• Added "Elevated Risk" phase (8-9 points) for more nuanced positioning
• 9 points is no longer extreme defensive zone (was 40% risk budget)
• Now allows 50-70% risk budget at 8-9 point level
• More gradual transition from Caution to Euphoria phases

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Data Sources (Required)

US Market

• Put/Call: https://www.cboe.com/tradable_products/vix/
• VIX: Yahoo Finance (^VIX) or https://www.cboe.com/
• Margin Debt: https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics
• Breadth: https://www.barchart.com/stocks/indices/sp/sp500?viewName=advanced
• IPO: https://www.renaissancecapital.com/IPO-Center/Stats

Japanese Market

• Nikkei Futures P/C: https://www.barchart.com/futures/quotes/NO*0/options
• JNIVE: https://www.investing.com/indices/nikkei-volatility-historical-data
• Margin Debt: JSF (Japan Securities Finance) Monthly Report
• Breadth: https://en.macromicro.me/series/31841/japan-topix-index-200ma-breadth
• IPO: https://www.pwc.co.uk/services/audit/insights/global-ipo-watch.html

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Implementation Checklist

Verify the following when using:

□ Have you collected all Phase 1 data?
□ Did you apply each indicator's threshold mechanically?
□ Did you keep qualitative evaluation within +5 point limit?
□ Are you NOT assigning points based on news article impressions?
□ Does your final score align with other quantitative frameworks?

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Important Principles (Revised)

1. Data > Impressions

Ignore "many news reports" or "experts are cautious" without quantitative data.

2. Strict Order: Quantitative → Qualitative

Always evaluate in this order: Phase 1 (Data Collection) → Phase 2 (Quantitative) → Phase 3 (Qualitative Adjustment).

3. Upper Limit on Subjective Indicators

Qualitative adjustment has a total limit of +5 points. It cannot override quantitative evaluation.

4. "Taxi Driver" is Symbolic

Do not readily acknowledge mass penetration without direct recommendations from non-investors.

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Common Failures and Solutions (Revised)

Failure 1: Evaluating Based on News Articles

❌ "Many reports on Takaichi Trade" → Media saturation 2 points ✅ Verify Google Trends numbers → Evaluate with measured values

Failure 2: Overreaction to Expert Comments

❌ "Warning of overheating" → Euphoria zone ✅ Judge with measured values of Put/Call, VIX, margin debt

Failure 3: Emotional Reaction to Price Rise

❌ 4.5% rise in 1 day → Price acceleration 2 points ✅ Verify position in 10-year distribution → Objective evaluation

Failure 4: Judgment Based on Valuation Alone

❌ P/E 17 → Valuation disconnect 2 points ✅ P/E + narrative dependence + other quantitative indicators for comprehensive judgment

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Recommended Actions by Bubble Stage (REVISED v2.1)

Normal (0-4 points)

Risk Budget: 100%

• Continue normal investment strategy
• Set ATR 2.0× trailing stop
• Apply stair-step profit-taking rule (+20% take 25%)

Short-Selling: Not Allowed

• Composite conditions not met (0/7 items)

Caution (5-7 points)

Risk Budget: 70-80%

• Begin partial profit-taking (20-30% reduction)
• Tighten ATR to 1.8×
• Reduce new position sizing by 50%

Short-Selling: Not Recommended

• Wait for clearer reversal signals

Elevated Risk (8-9 points) ⚠️ NEW in v2.1

Risk Budget: 50-70%

• Increase profit-taking (30-50% reduction)
• Tighten ATR to 1.6×
• New positions: highly selective, quality only
• Begin building cash reserves for future opportunities

Short-Selling: Consider Cautiously

• Only after confirming at least 2/7 composite conditions
• Small exploratory positions (10-15% of normal size)
• Strict stop-loss (ATR 2.0×)

Rationale for NEW phase: This zone represents heightened caution without extreme defensiveness. Market shows warning signs but not imminent collapse. Maintain exposure to quality positions while building flexibility.

Euphoria (10-12 points)

Risk Budget: 40-50%

• Accelerate stair-step profit-taking (50-60% reduction)
• Tighten ATR to 1.5×
• No new long positions except on major pullbacks

Short-Selling: Active Consideration

• After confirming at least 3/7 composite conditions
• Small positions (20-25% of normal size)
• Defined risk only (options, tight stops)

Critical (13-15 points)

Risk Budget: 20-30%

• Major profit-taking or full hedge implementation
• ATR 1.2× or fixed stop-loss
• Cash preservation mode - prepare for major dislocation

Short-Selling: Recommended

• After confirming at least 5/7 composite conditions
• Scale in with small positions, pyramid on confirmation
• Tight stop-loss (ATR 1.5× or higher)
• Consider put options for defined risk

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Composite Conditions for Short-Selling (7 Items)

Only consider shorts after confirming at least 3 of the following:

1. Weekly chart shows lower highs
2. Volume peaks out
3. Leverage indicators drop sharply (margin debt decline)
4. Media/search trends peak out
5. Weak stocks start to break down first
6. VIX surges (spike above 20)
7. Fed/policy shift signals

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Output Format

Evaluation Report Structure (v2.1)

# [Market Name] Bubble Evaluation Report (Revised v2.1)

## Overall Assessment
- Final Score: X/15 points (v2.1: max reduced from 16)
- Phase: [Normal/Caution/Elevated Risk/Euphoria/Critical]
- Risk Level: [Low/Medium/Medium-High/High/Extremely High]
- Evaluation Date: YYYY-MM-DD

## Quantitative Evaluation (Phase 2)

| Indicator | Measured Value | Score | Rationale |
|-----------|----------------|-------|-----------|
| Put/Call | [value] | [0-2] | [reason] |
| VIX + Highs | [value] | [0-2] |