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’s strong momentum continued in the latest week; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash move down — maintain buy.
• JETS ETF – The airline ETF gave back much of the prior week’s gain as volatility took its toll; ECO metrics show JETS staying in a crash state; both expected return and return no crash move down — maintain buy.
• Oil – WTI crude moved down a second week; stays in a neutral state; expected return gets a lift — maintain buy.
• USLargeCapGrowth – The style index declined for a fifth week as the tech rout gained steam; stays in rally mode; both expected return and return no crash rise but stay in the red — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe was down only marginally in the latest week and beat small cap growth again; bubble type stays in crash mode; both expected return and return no crash fall –maintain buy.
• RealEstate ETF – The Real Estate ETF moved up for a third week in an overall down market; moves to a crash state; expected return rises — upgrade to buy.
• TSLA — The vehicle maker managed to post a positive return in the down market; volatility persists; stays in a crash state; both expected return and return no crash rise — maintain buy.
• USUnvGradeBond — This bond grouping moved up in the latest week as fixed income provided a safe haven; stays in a neutral state; both expected return and return no crash rise — maintain hold.
• Technology ETF – XLK lost ground for a fifth week and underperformed the market but beat its large cap growth cohort; tech no longer the best performing sector in the trailing year; stays in a rally mode; return no crash improves but stays negative — maintain sell.
• HealthCare ETF – Basically flat in the latest week after a series of back and forth moves; stays in crash state; expected return rises — upgrade to buy.
• Bitcoin – Amidst extreme volatility, the cryptocurrency fell again in the trailing week as the crypto downtrend continues unabated; stays in rally state; both expected return and return no crash mover further negative — maintain sell.

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.