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 rally state; both expected return and return no crash go positive — upgrade to buy.
• JETS ETF – The airline ETF bounced back strongly for the week as oil fell; ECO metrics show JETS staying in a crash state; both expected return and return no crash rise — maintain buy.
• USLargeCapGrowth – The style index was up slightly for the week; growth stocks dramatically underperformed the market and value stocks; stays in rally mode; both return no crash and expected return stay negative — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe moved down a tiny bit in the last week in line with the small cap universe; bubble type stays in crash mode; little change in metrics — maintain buy.
• RealEstate ETF – The Real Estate ETF was down big for the week and lost to the equity market; stays in a crash state; return no crash goes negative but expected return rises — upgrade to buy.
• TSLA — The vehicle maker was down again in the latest week along with a generally poor showing for tech-oriented shares; volatility persists; stays in a rally state; expected return and return no crash go further negative — maintain sell.
• USUnvGradeBond — This bond grouping was flat for the week as investors favored stocks; stays in a rally state; both return no crash and expected return slip — maintain sell.
• Technology ETF – XLK was down in the latest week as rotation into tech remained jumpy; tech continues to be quite volatile as Q2 earnings roll in; underperformed its large cap growth cohort dramatically; tech no longer the YTD winner as energy stocks dominate; stays in a crash mode; return no crash goes further into the red as expected return moves down — maintain buy.
• HealthCare ETF – Healthcare was unchanged for the week after generally showing a decent positive recent trend; stays in a crash state; both return no crash and expected return improve — 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.