Stock market crash checklist: ten tests, one reading

How does a stock market crash checklist work?

A stock market crash checklist works like a pre-flight list. Each of the 10 tests asks one yes or no question about one source of fragility, using a public number and a norm. A test turns red when the number sits beyond its norm, amber when it nears it, and green otherwise. Small answers are easier to defend than one large opinion.

The reading comes from the count. This page’s rule is simple: 0 to 3 red tests means calm, 4 to 6 means watch, and 7 or more means alert. The thresholds are a working convention, and you can adjust them as long as you write them down before you run the tests. Warning signs gain meaning when they are counted together.

Which valuation and lending tests belong on a stock market crash checklist?

Test 1 compares prices with a fundamental, such as earnings or incomes, against the long-run average. According to the EQOS Asia 2008 back-test (2026), the US price to income ratio stood at 4.6× in 2006, against an average of 3.2×. Test 2 checks lending quality. The study records a subprime share of 23.5% of lending, up from 8% in 2003, and subprime defaults of 14.4% at the end of 2006.

Test 3 checks leverage. The study lists banks at 30:1 in 2007, with a bankruptcy threshold of 3.3%, against a prudential range of 12:1 to 15:1 under Basel II. A leverage ratio is the cleanest test on the list, since it converts directly into the size of fall that a lender can absorb. Run these 3 tests first, because they set how far a fall could run.

Which structure tests add depth to a stock market crash checklist?

Test 4 compares derivatives with the real economy. The study cites credit default swaps of 62,000 billion dollars (BIS) against a world GDP of 54,000 billion, a ratio of about 1.15, and it describes a system where bets on risk exceed the economy as structurally incoherent. Test 5 checks rating quality: in the study, 80% of CDO tranches carried an AAA rating.

Test 6 checks transparency. The study puts real risk at about 5× the declared exposure once off-balance-sheet vehicles are counted, citing the IMF post-mortem. A system where most risk stays invisible scores poorly on transparency, whatever its headline ratios say. Tests 4 to 6 explain why a fall spreads from one corner to the whole market.

Which crowd and rule tests warn of a stock market crash?

Test 7 reads the crowd. The study compares resonance, the degree to which the market moves in unison, with transparency, and finds a ratio of 4.3:1 in 2006-2007, above its 3:1 threshold for a bubble anomaly. In plain terms, confidence ran far ahead of visibility. Research on investor imitation, summarised on Wikipedia, points the same way, with imitation rising in the year before crashes.

Test 8 reads the rules. The study lists the repeal of Glass-Steagall in 1999, unregulated CDS from 2000, and looser leverage ratios for the largest banks in 2004, and it records an ethical safeguard of −0.187 for the system. The minus sign belongs to the study’s own scale. Rule tests show whether safeguards stand between a shock and the market.

Which stress tests close the stock market crash checklist?

Test 9 watches funding stress. The study records the TED spread, a gauge of interbank trust, rising from 20 basis points to 200 basis points within days in August 2007. Funding gauges move late, yet they move fast, so they confirm that fragility has turned into action. A red result here calls for a review at once.

Test 10 combines the structure into one score. The study’s φ(S) for the global financial system stood at 0.234 on 2006-2007 data, below the 0.3 critical threshold, with 6 of 9 dimensions critical. You can compute your own score with the EQOS Asia method, and the result gives test 10 a number that 2 readers can reproduce.

How do 10 tests become one stock market crash reading?

Write the 10 results in one row: test number, reading, norm, colour, and date. Count the red cells and apply the rule from the first section. The count gives the reading, and the row gives the reasons. When 2 tests disagree, keep both in the record and follow the rule, since overriding the rule midway defeats the purpose.

Add a note on trend. A count of 4 red tests that was 2 last quarter carries more information than a count of 5 that was 5 last quarter. Trends show whether fragility builds or eases, and they help you decide when to act. The worked example is a retrospective, so a live run on current numbers belongs to you.

How often should you rerun the stock market crash checklist?

Once a quarter fits most decisions, because the underlying numbers update on that rhythm. Keep the table in one file, add a column per quarter, and note the sources. After 4 quarters you hold a year of readings, which shows direction at a glance. As of October 2026 this routine suits investors and boards in Singapore, ASEAN, and Hong Kong.

A 30-minute pre-diagnostic with EQOS Asia runs the checklist on your own exposure, and the Λ simulator shows how each scenario plays out. The pricing page lists the available formats. This page is general information, not investment advice. The checklist informs a decision and leaves the final choice to you.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile