Predictions

Bubbles, crashes, rallies, and corrections

Fundamental, cyclical, and emotional factors influence financial markets and can be observed in market prices. Over various time frames, prices can exhibit non-random behavior such as trending, mean-reversion, or bubbles. These price patterns arise in all global markets and can be exploited profitably given adequate liquidity.

But price patterns are transitory and poorly understood by most discretionary investors. The Efficient Crashes Optimizer (ECO) asset price model identifies signatures in price data indicating potential crashes or rallies and estimates the magnitudes, the probabilities, and the timing of expected moves.

In the examples below, various predictions for several assets are highlighted in the table.  We track the forward-tested results of these predictions by using the ‘hedge’ column to weight each asset return.  Note that some assets can be levered up to 2X.

In addition to the assets shown here, predictions/trading signals can be calculated on a variety of individual or index returns of equities, fixed income, commodities, or currencies over various periodicities.

Wherever one invests, our timing tools have shown benefits across a wide variety of assets.

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ECO Bubble Predictions

• Gold – Gold surged in the past week after two weeks of losses; ECO metrics show gold staying in a crash state; little change in metrics — maintain buy.
• JETS ETF – Airline ETF was up in the past week but loses out to the broader stock market; stays in crash state; little change in metrics — maintain buy.
• Oil – Records a marginal gain for the week; expected return and return no crash maintain prior values — maintain sell.
• USLargeCapGrowth – Rises in the past week after but loses to the broader market; underperforms value stocks; stays in crash mode; expected return and return no correction improve — maintain buy.
• USSmallCapValue – Decent move up for the week and performs in line with its small cap growth counterpart; expected return and return no correction improve — maintain buy.
• RealEstate ETF – Moves up for a third week as interest sensitive sectors recover; stays in crash state; expected return and return no correction improve — maintain hold.
• TSLA – Extreme volatility persists as TSLA records a big drop for the week; YTD underperformance persists; stays in rally state; expected return and return no correction stay negative — maintain sell.
• USUnvGradeBond — Small loss for the week posted and gets beaten by equities again; expected return and return no correction fall — maintain buy.
• Technology ETF – Up for the week but loses to the broader market and performs in line with its large growth style cohort; return no correction and expected return stay positive — maintain buy.
• HealthCare ETF – Records a hefty gain for the week beating the broader market; maintains crash state; expected return and return no correction stay positive — maintain buy.
• Bitcoin – Another loss for the one week period extending losses to six weeks as virtual currencies exhibit renewed volatility; maintains crash state; return no crash stays positive — maintain buy.

The simulated performance of this list is tracked here.  For more details see ECO Overview, Notes, and Details

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To download historical ECO scores or more information, contact kreuser@riskontroller.com.