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 failed as a safe have in a highly volatile week; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash move down — maintain buy.
• JETS ETF – The airline ETF was pounded in the prior week as global travel was disrupted; ECO metrics show JETS moving to a neutral state; expected return barely budged and return no crash drops — downgrade to hold.
• Oil – WTI Oil soared in the latest week on energy infrastructure and transportation disruptions across the Middle East; stays in a crash state; both expected return and return no crash catapult up — upgrade to buy.
• USLargeCapGrowth – The style index continued down but outperformed the market handily; stays in rally mode; both expected return and return no crash rise but stay in the red — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe was down big in the latest week but beat small cap growth; bubble type stays in crash mode; return no crash drops quite a bit and stays deep into the red — maintain buy.
• RealEstate ETF – The Real Estate ETF moved down with the market after five weeks of gains; moves to a neutral state; return no crash goes negative but expected return moves up — neutral rating overall.
• TSLA — The vehicle maker continued down but beat the market; volatility persists; moves to neutral state; return no crash goes further negative and expected return goes negative — downgrade to sell.
• USUnvGradeBond — This bond grouping dropped in the latest week as fixed income failed to provide a safe haven; maintains a neutral state; both expected return and return no crash slip — downgrade to hold.
• Technology ETF – XLK lost ground again but outperformed the market and lost to its large cap growth cohort; tech no longer the best performing sector in the trailing year and dramatically underperforming YTD; stays in a rally mode; little change in metrics — downgrade to sell.
• HealthCare ETF – Healthcare did not provide shelter in the storm and got pummeled in the latest week after a series of back and forth moves; stays in crash state; return no crash goes negative — maintain buy.
• Bitcoin – Amidst extreme volatility, the cryptocurrency moved up for the week; stays in rally state; both expected return and return no crash go positive — upgrade to 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.