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 was down marginally in the latest week; ECO metrics show gold staying in a (potential) crash state; return no crash fell but expected return moved up — maintain buy.
• JETS ETF – The airline ETF dropped for a second week but managed to outperform the market; ECO metrics show JETS staying in a crash state; return no crash goes positive — maintain buy.
• Oil – WTI crude took a hit in the latest week; stays in a rally mode; little change in metrics — maintain hold.
• USLargeCapGrowth – The style index fell quite a bit in the most recent week along with the tech rout and lost out to value stocks; moves to rally mode; return no crash rises but expected return drops — maintain sell.
• USSmallCapValue – Dropped in the latest week but outperformed the small cap universe and larger stocks; bubble type stays in crash mode; return no crash goes positive — maintain buy.
• RealEstate ETF – The Real Estate ETF bucked the market and rose in the past week; stays in rally state; return no crash goes positive — maintain hold.
• TSLA — Plummeted for a third week; stays in crash state; return no crash goes further negative but expected return inches up — upgrade to buy.
• USUnvGradeBond — A decent up move for the week as volatility stays high; moves back to crash state; both expected return and return no crash go up — upgrade to buy.
• Technology ETF – XLK was hammered for the week and dramatically underperformed its large cap growth cohort; tech still way ahead of the market YTD; stays in a crash mode; both return no crash and expected return move down — downgrade to sell.
• HealthCare ETF – Counters the broad market and moves up big for a third week; is no longer the worst sector YTD (see consumer staples); drops to crash state; both expected return and return no crash slip — maintain buy.
• Bitcoin – The rout in cryptocurrency continued for a fourth week; stays in rally state; both expected return and return no crash advance — 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.