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 – The underlying precious metal was up in the prior week after two weeks of losses; ECO metrics show gold staying in a (potential) crash state; return no crash dips but expected return rises  — maintain buy.
• JETS ETF – The airline ETF was down in the latest week after several weeks of strong gains; ECO metrics show JETS staying in crash state; return no crash drops but expected return goes positive — maintain buy.
• Oil – Oil recouped the prior two weeks of losses and posted a strong weekly return; bubble type drops to crash state; return no correction goes positive — downgrade to sell.
• USLargeCapGrowth – The style index was up again in the past week and outperformed the broader stock market and beat value stocks once again; both expected return and return no crash drop considerably; stays in crash mode — maintain buy.
• USSmallCapValue – Down for the week and loses out to both small stocks and small growth stocks; rotation favoring value continues to fade; return no crash moves down but expected return rises — maintain buy.
• RealEstate ETF – Records another sizable drop for the past week and gets beaten by the broad market; both expected return and return no correction improve modestly — maintain sell.
• TSLA — Records another major win for the week as post-election fervor continues; stays in crash state; both expected return and return no crash skyrocket — downgrade to hold.
• USUnvGradeBond — A large loss for the week; stays in crash state; both expected return and return no crash go positive — upgrade to buy.
• Technology ETF – Records a loss for the week and is still a substantial loser relative to the market YTD; underperforms its large cap growth cohort substantially and loses to the broad market; stays in crash state; little change in metrics — maintain buy.
• HealthCare ETF – Records another big loss for the week as the ETF continues its YTD loss relative to the market; stay in neutral state; both expected return and return no correction are neutral — maintain hold.
• Bitcoin – Records a gain as post-election fervor seems to linger; maintains crash state; both expected return and return no crash slide down — 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.