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 down in the last week after a long stretch of gains; ECO metrics show gold staying in a (potential) crash state; return no crash stays negative — downgrade to hold.
• JETS ETF – The airline ETF rallied in a big way in the latest week after a series of back and forth gains/losses; ECO metrics show JETS moving to a neutral state; both expected return and return no crash go positive — upgrade to hold.
• Oil – Recorded another steep decline in the latest week; Oil stays in a rally state; return no crash ans expected return both deteriorate — maintain sell.
• USLargeCapGrowth – The style index jumped again in the prior week and trounced the market; value stocks underperformed growth stocks by a wide margin; stays in rally mode; both expected return and return no crash improve — maintain buy.
• USSmallCapValue – Shows continuing strength and moves up for a fourth week but lost out to the small cap universe; rotation favoring value fades; bubble type stays in rally mode; return no crash moves down — maintain buy.
• RealEstate ETF – Up modestly for the week and performs in line with the market; drops to a neutral state from its prior rally state; both expected return and return no crash improve — downgrade to hold.
• TSLA — Stock was essentially flat in the latest week and underperformed the market; stays in crash state; expected return moves up but return no crash moves down — upgrade to buy.
• USUnvGradeBond — Records a loss for the week along with other bonds; maintains neutral state; return no crash jumps but expected return flat– maintain hold.
• Technology ETF – Pops up for the week and beats its large cap growth cohort; remains a big loser relative to the market YTD as well as for the trailing one year period; stays in rally mode; return no crash drops but expected return moves up — maintain buy.
• HealthCare ETF – Barely ekes out a gain for the week and underperforms the market; stays in rally state; both return no crash and expected return drop — maintain buy.
• Bitcoin – The cryptocurrency moved up in the risk-on environment in the latest week; correlation with risk assets reignites; drops to a crash status; expected return improves — 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.