A Supercomputer Is Betting on a Market Crash in the Months Ahead

A Supercomputer Is Betting on a Market Crash in the Months Ahead from Financial Sense

TDC Note – With close to 90% of all “trades” and “market action” being conducted by a computer it only makes sense that another computer could see there is going to be problem in the so-called markets. I wonder if this supercomputer can see the manipulation that could stop a major crash from happening or if it can only tell the “masters of the universe” what’s coming, and when, so they can make the necessary algorithmic adjustments to ensure the too big to jail banks make the largest profits, and soak as much of the wealth, as possible?

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One of the world’s most powerful supercomputers, retrofitted for trading the stock market, appears to be betting on a crash in the months ahead.

The Financial Crisis Observatory (FCO) at ETH Zurich released its latest Global Bubble Status Report on July 1st. As we discussed with FCO’s director, Didier Sornette, on our podcast in May, they use one of the world’s leading supercomputers to monitor global markets each day for two distinct bubble-like characteristics: faster than exponential price movement and accelerating oscillations (see Podcast: Using a Supercomputer to Trade the Market).

Their July report notes an increasing trend of positive bubbles across multiple asset classes.

Here’s what they say in their “big picture” section:

“One can observe the continuation of a trend in the growth of positive bubbles in the fixed income asset class for the second month. The fraction of stocks diagnosed in a positive bubble state increased this month to exceed 36% compared with 32% last month. Mixed bubble signals still occur only in few commodity indices. We also observe renewed bubble activity in currency pairs.” [source]

Here is the chart where they show the “historical evolution of the fraction of assets within an asset class that show significant bubble signals”:

historical evolution fraction assets

Based on their daily scan of global markets, the Financial Crisis Observatory assigns individual stocks into four different quadrants based on their bubble strength and value score. These four quadrants are then used to create a trading strategy consisting of four different portfolios, which they define as follows (click image to enlarge):

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Financial Sense

Financial Sense® Newshour is a free financial/market broadcast hosted by money manager Jim Puplava on the week's market action, interviews with financial experts, and Jim's personal perspective on the markets/economy.