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 up again in the last week continuing its string of gains; ECO metrics show gold staying in a (potential) crash state; expected return slips — maintain buy.
• JETS ETF – The airline ETF was hammered in the latest week and underperformed the market; ECO metrics show JETS staying in a crash state; expected return improves — upgrade to buy.
• Oil – Oil continued its rebound in the latest week; bubble type stays in crash state; both expected return and return no crash go positive — upgrade to buy.
• USLargeCapGrowth – The style index was pushed down in the prior week and underperformed the market; growth stocks were beaten by value stocks once again; stays in rally mode; both expected return and return no crash move up — maintain sell.
• USSmallCapValue – The style index was down in the past week but outperformed the small cap universe; rotation favoring value returns; bubble type stays in rally state; both expected return and return no crash move up — maintain hold.
• RealEstate ETF – Moves up for the week displaying a bit of safety in a down equity market; return no crash goes positive; little change in metrics — maintain hold.
• TSLA — Up in the latest week after being down for nine straight weeks; stays in crash state; little change in metrics — maintain hold.
• USUnvGradeBond — Records a modest loss for the week; moves up to a neutral state; return no crash improves — downgrade to hold.
• Technology ETF – Beaten down for the week and loses to its large cap growth cohort; remains a big loser relative to the market YTD; stays in rally mode; both expected return and return no crash drop — maintain sell.
• HealthCare ETF – Records a drop for the week but beats the market; stays in rally state; return no crash improves but expected return drops — maintain sell.
• Bitcoin – Was essentially unchanged for the week; correlation with risk assets decouples a bit; whipsawing continues; maintains crash state; both expected return and return no crash move up — 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.