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.

Our timing tools have shown benefits across a wide variety of assets.

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ECO Bubble Predictions

• Gold – Gold continued on its uptrend after faltering in early March; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash slip — maintain buy.
• JETS ETF – The airline ETF rose sharply for a fourth week and beat the market slightly; ECO metrics show JETS moving to a neutral state; both expected return and return no crash jump — upgrade to buy.
• Oil – WTI Oil crashed in the latest week after huge gains from the Middle East conflict; stays in a crash state; both expected return and return no crash go negative — downgrade to hold.
• USLargeCapGrowth – The style index rallied and beat the market in a continuing turnaround; stays in rally mode; both expected return and return no crash rise but stay in the red — upgrade to hold.
• USSmallCapValue – The high book-to-price small cap universe was up big again in the latest week but lost to small cap growth; bubble type stays in crash mode; return no crash advances — upgrade to buy.
• RealEstate ETF – The Real Estate ETF moved up for a second week but failed to keep up with the market; moves to a neutral state; return no crash goes positive –upgrade to hold.
• TSLA — The vehicle maker dropped big for an eighth week; volatility persists; stays in a rally state; both expected return and return no crash move down — maintain sell.
• USUnvGradeBond — This bond grouping finally eked out a return for the week as risk assets rallied; stays in a neutral state; both expected return and return no crash improve — maintain hold.
• Technology ETF – XLK jumped for a second week and appears to be leading risk assets in the rebound after the Middle East shock to the markets; outperformed its large cap growth cohort; tech no longer the best performing sector in the trailing year (see Energy) and is underperforming YTD; stays in a rally mode; both expected return and return no crash go positive — upgrade to hold.
• HealthCare ETF – Healthcare rose for the week but failed to keep up with the market; stays in a neutral state; expected return stays positive and return no crash improves — maintain hold.
• Bitcoin – Amidst extreme volatility, the cryptocurrency advanced sharply in the latest week; stays in rally state; return no crash is now positive but expected return slips — upgrade to 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.