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 for a seventh week; ECO metrics show gold staying in a (potential) crash state; expected return drops — maintain buy.
• JETS ETF – The airline ETF dropped quite a bit in the prior week despite the overall market rising; ECO metrics show JETS staying in a crash state; expected return drops — downgrade to hold.
• Oil – Oil recorded another loss now for a fourth week; bubble type stays in crash state; little change in metrics — maintain sell.
• USLargeCapGrowth – The style index moved up along with the market in the prior week and beat value stocks handily; stays in crash mode; both return no crash and expected return dip — maintain buy.
• USSmallCapValue – The style index managed to eke out a gain in the past week and slightly beat the small cap universe; rotation favoring value somewhat revives in small cap; both return no crash and expected return improve — downgrade to hold.
• RealEstate ETF – Records a gain for the past week but underperforms the market; both return no crash and expected return improve — maintain sell.
• TSLA — Down for a fourth week; stays in crash state; return no crash goes way negative — maintain hold.
• USUnvGradeBond — Records another decent gain with five straight weeks in the black; stays in crash state; both return no crash and expected return dip — maintain buy.
• Technology ETF – Shows a big positive return for the week and beat its large cap growth cohort; remains a loser relative to the market for the YTD; drops to neutral state; expected return jumps — upgrade to buy.
• HealthCare ETF – HealthCare was down for the week as its chronic malaise doesn’t seem to quit; moves up to a rally state; return no crash moves up but expected return moves down — maintain hold.
• Bitcoin – Records a modest gain for the week along with other risk assets; whipsawing continues; maintains crash state; little change in metrics — 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.