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 last week as risk assets rebounded; the precious metal seems to be a safe haven when risky assets do badly but underperforms when volatility subsides; ECO metrics show gold staying in a (potential) crash state; both return no crash and expected return rise — maintain buy.
• JETS ETF – The airline ETF was down somewhat after a dramatic week run up; ECO metrics show JETS staying in a crash state; both return no crash and expected return dip — maintain buy.
• Oil – Dropped for a second week; stays in a crash state; both return no crash and expected return go negative — downgrade to hold.
• USLargeCapGrowth – The style index was up quite a bit for the week but underperformed the market; stays in rally mode; both return no crash and expected return improve — maintain buy.
• USSmallCapValue – Up for the week in a generally positive equity market environment and outperformed the small cap universe; bubble type moves back to a neutral mode from the previous rally state; return no crash goes positive — upgrade to hold.
• RealEstate ETF – The Real Estate ETF moved up over the trailing week and in a rare move, outperformed the equity market; stays in rally state; both return no crash and expected return rise — upgrade to buy.
• TSLA — Whipsawing continues as stock got hammered in the latest week; stays in crash state; return no crash dives — maintain hold.
• USUnvGradeBond — Records a hefty gain for the week as bonds hold their own; stays in neutral state; both return no crash and expected return move up — maintain hold.
• Technology ETF – Also up for the week but loses out to its large cap growth cohort; tech still well ahead of the market YTD; stays in rally mode; return no crash dips but expected return rises — maintain buy.
• HealthCare ETF – Rebounds nicely in the latest  week and outperformed the market handily; stays in rally state; return no crash improves — upgrade to hold.
• Bitcoin – The cryptocurrency recorded a slight loss in the latest week as momentum fades; stays in rally status; expected return moves down and return no crash goes negative — downgrade to 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.