Macro Crash Radar V3

1. What this dashboard does

This dashboard is designed as an early warning system for market stress and potential crash risk. It monitors financial and macro indicators that historically deteriorate before major market corrections.

The model does not attempt to predict the exact timing of a crash. Instead it evaluates whether the financial system is becoming more fragile, more stressed, or more stable over time.

2. How the crash probability is built

The crash probability is mainly derived from the Core Market Stress indicators.

• a status (OK, ELEVATED, WARNING, ALARM)
• a risk score
• a model weight

The weighted combination of these signals produces a systemic risk score which is translated into a crash probability percentage.

3. Core Market Stress indicators

The Core Market Stress indicators are the primary drivers of the crash risk model. Each indicator measures stress in a different part of the financial system. Together they help detect whether stress is building internally within markets, or spreading more broadly across asset classes.

Each indicator produces a risk score based on how far the current market condition deviates from its normal trend or equilibrium level. These scores are then multiplied by model weights and combined into the overall systemic risk score.

The indicators cover five main stress channels:

• Volatility Stress (VIX)
  Measures expected volatility in the equity market based on S&P 500 options pricing. A rising VIX reflects increasing demand for downside protection and often signals growing uncertainty or fear among investors. Sharp spikes in the VIX are frequently observed during market corrections.
• Volatility Regime Shift
  Detects whether volatility is structurally moving into a higher regime relative to recent market history. Even without a sudden spike, a sustained increase in volatility often indicates deteriorating market stability.
• High Yield Credit Spread
  Measures the difference between yields on lower-quality corporate bonds and risk-free government bonds. When spreads widen, it indicates that investors demand higher compensation for credit risk, often signaling deterioration in corporate credit conditions.
• HYG Trend
  Tracks the trend of the high-yield bond ETF (HYG). High-yield bonds are very sensitive to economic risk and liquidity conditions. Weakness here often appears before stress spreads to equities.
• MOVE
  The MOVE index measures volatility in U.S. Treasury yields. Rising bond volatility often reflects uncertainty around interest rates, inflation expectations, or monetary policy.
• Global Liquidity
  Captures broader financial liquidity conditions. Tightening liquidity tends to increase systemic fragility because it reduces the availability of capital across financial markets.
• USD Index
  A strengthening U.S. dollar can signal tightening global financial conditions. Because much global debt is dollar-denominated, a stronger dollar can increase funding pressure internationally.
• S&P Breadth
  Measures how broadly the equity market rally is supported across individual stocks. When fewer stocks participate in market gains, market structure becomes more fragile and more vulnerable to corrections.
• Nasdaq Trend
  Tracks the trend of growth-oriented technology stocks. These assets tend to be highly sensitive to liquidity and risk appetite and often weaken early when investor sentiment deteriorates.
• Yield Curve (2s10s)
  Measures the slope between short-term and long-term government bond yields. An inverted or flattening yield curve often signals tightening financial conditions and increasing macroeconomic stress.

Because these indicators monitor different segments of the financial system, they help detect whether stress is isolated to a single market or spreading more broadly across equities, credit, interest rates, and liquidity conditions.

4. Heatmap vs Market Stress Dashboard

System Stress Heatmap

Shows the weighted contribution of each market segment to the systemic risk score. It answers the question: Which systems are currently driving overall risk?

Market Stress Dashboard

Shows the raw status of each indicator without model weighting. It answers the question: Which market segments are currently calm or stressed?

How to read them together

• Inactive – the Market Stress Dashboard shows mostly OK or ELEVATED signals, so little stress is visible.
• Active – some indicators deteriorate, so stress is becoming visible in the Market Stress Dashboard.
• Confirmed – the same systems begin to dominate the Heatmap, meaning stress is now materially driving systemic risk.

In short: the Dashboard shows where stress appears; the Heatmap shows when it starts driving systemic risk.

5. Structural Vulnerability

Structural indicators show whether the system may be fragile beneath the surface, even when market stress is still low.

• Debt Burden
• Valuation Stretch
• Credit System Fragility

6. System Risk Position stages

7. Typical Stress Escalation Pattern

Market stress usually spreads through the system in stages.

8. How to read the dashboard

1. Start with the Summary
2. Look at the System Stress Heatmap
3. Check the Top Risk Drivers
4. Review the Core Market Stress indicators
5. Check Macro Context and Structural Vulnerability

9. Status levels

• OK – normal conditions
• ELEVATED – early warning
• WARNING – clear market stress
• ALARM – rare extreme stress

10. Important limitation

This dashboard is an early warning system. It does not predict exact crash timing, but helps monitor whether systemic risk is rising, stable or easing over time.