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 was up strongly in the latest week after four down weeks that brought into question its role as a safe haven; ECO metrics show gold staying in a (potential) crash state; return no crash goes positive — upgrade to buy.
• JETS ETF – The airline ETF rose sharply in the holiday shortened week and beat the market handily; ECO metrics show JETS staying in a rally state; return no crash rises — downgrade to hold.
• Oil – WTI Oil advanced yet again on global energy infrastructure and transportation woes; stays in a crash state; both expected return and return no crash slip — maintain buy.
• USLargeCapGrowth – The style index rallied and beat the market in a major turnaround; stays in rally mode; both expected return and return no crash stay in the red — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe was up big in the latest week and beat small cap growth; bubble type stays in crash mode; both expected return and return no crash move down — downgrade to hold.
• RealEstate ETF – The Real Estate ETF moved up for the week in line with the market; stays in a rally state; return no crash improves but expected return goes negative — maintain sell.
• TSLA — The vehicle maker dropped big for a seventh week; volatility persists; stays in a rally state; both expected return and return no crash move up — maintain sell.
• USUnvGradeBond — This bond grouping finally turned around as risk assets rallied; moves to a neutral state; both expected return and return no crash improve — upgrade to hold.
• Technology ETF – XLK jumped for the week and beat the market big time; performed in line with its large cap growth cohort; tech no longer the best performing sector in the trailing year (see Energy) and is underperforming YTD; stays in a rally mode; return no crash improves but expected return goes negative — maintain sell.
• HealthCare ETF – Healthcare rose for the week but failed to keep up with the market; moves to a neutral state; expected return goes positive and return no crash improves — upgrade to hold.
• Bitcoin – Amidst extreme volatility, the cryptocurrency eked out a positive return in the latest week; stays in rally state; return no crash is now negative and expected return rises — maintain hold.

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.