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’s positive momentum continued in the holiday-shortened week and surged along with the equity markets; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash move up — maintain buy.
• JETS ETF – The airline ETF slipped for the week after a series of gains; ECO metrics show JETS staying in a crash state; both expected return and return no crash jump — upgrade to buy.
• Oil – After two bruising weeks, WTI crude eked out a gain; stays in a rally mode; return no crash goes further into the red — upgrade to hold.
• USLargeCapGrowth – The style index gained in the trailing week as tech stocks beat the market; stays in rally mode; expected return goes negative but return no crash improves — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe was flat in the latest week as larger names outperformed; the style index also underperformed the small cap universe; bubble type stays in crash mode; both expected return and return no crash improve — upgrade to buy.
• RealEstate ETF – The Real Estate ETF underperformed the overall market and fell for a fourth week; stays in rally state; little change in metrics — maintain hold.
• TSLA — The vehicle maker fell for the week after a series of large gains; stays in crash state; both expected return and return no crash jump — maintain buy.
• USUnvGradeBond — This bond grouping showed strength in the latest week as the new year approached; moves to a neutral state; return no crash advances but expected return goes negative — downgrade to hold.
• Technology ETF – XLK rose for the week outperforming its large cap growth cohort and the market; tech is the best performing sector YTD; stays in a crash mode; both expected return and return no crash fall — maintain buy.
• HealthCare ETF – Moved up for a third week as steady gains continue; is no longer the worst sector YTD (see staples); stays in crash state; return no crash goes positive — upgrade to buy.
• Bitcoin – Amidst extreme volatility, the cryptocurrency fell for the week as the rout in cryptocurrencies persists; stays in rally state; return no crash goes negative — downgrade to sell.

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.