Bubbles, crashes, rallies, and corrections
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. Using a set of assets of interest in the current market, various predictions from the modelling process are highlighted in the table below.
We track the simulated performance of this list by using the ‘hedge’ column to weight each asset return.
ECO Bubble Predictions
- Gold – Stratospheric gold prices are a hot topic (e.g., John Authers blog of 2020-08-26). We show gold overpriced by 18% but that overvaluation is associated with a small correction probability. The previous sell on gold is now a buy as the hedge size jumped.
- JETS ETF – With large correction size (rally), JETS is a buy because the expected return remains fairly high.
- Oil – After its strong rally we show its expected return dropping and its return no correction plummeted.
- USLargeCapGrowth – Bubble continues to grow and is currently 13% overpriced. The correction size is sizable when it does crash but the correction probability dropped, so back to a buy.
- USSmallCapValue – Underpriced by 15% and the probability for a correction is good at 28%, but the return without a correction has been dropping, hold.
- RealEstate ETF – Hedge indicates buy.
- TSLA – 132% overpriced but the correction probability fell and the return expectation is 29%. Buy maintained but volatility may be in the offing.
- USUnvGradeBond – The correction size moved to neutral from a previous big negative which had signified a prior negative outlook. Shift to buy from hold.
- Technology ETF – Tech is overpriced 15% but the return without a correction is good at 15% and it has a small (but growing) probability of correcting (crashing).
- HealthCare ETF – Currently a buy but the return will be small in either case of a correction or not.
For more details see ECO Explanatory Notes
“WEBSITE AND THE INFORMATION CONTAINED HEREIN IS NOT INTENDED TO BE A SOURCE OF ADVICE OR CREDIT ANALYSIS WITH RESPECT TO THE MATERIAL PRESENTED, AND THE INFORMATION AND/OR DOCUMENTS CONTAINED IN THIS WEBSITE DO NOT CONSTITUTE INVESTMENT ADVICE.”
ECO scores are an important input in the AugurMax investment process. A powerful, cutting edge asset allocation engine is created when combining ECO scores with the RisKontroller optimizer.