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 jumped in the last week as the underlying precious metal is whipsawing; ECO metrics show gold staying in a (potential) crash state; return no crash stays negative — maintain buy.
• JETS ETF – The airline ETF fell for the week along with the market; ECO metrics show JETS staying in a crash state; little change in metrics — maintain buy.
• Oil – Recorded a small loss for the latest week amidst a pattern of declines; Oil is down 11% YTD and stays in a rally state; return no crash and expected return both decline — maintain sell.
• USLargeCapGrowth – The style index gave back some of the prior week’s gain and underperformed the market slightly; hence value outperformed growth; stays in rally mode; return no crash goes negative — downgrade to sell.
• USSmallCapValue – Moves down for the week after a series of comeback gains and loses to the small growth style index; rotation favoring value fizzles again; bubble type stays in rally mode; return no crash goes negative — downgrade to sell.
• RealEstate ETF – The Real Estate weekly return registered a big loss and the ETF underperformed the market; moves up to a rally state; return no crash goes negative — downgrade to sell.
• TSLA — Pushed lower in the latest week and gets beaten beat the market; stays in crash state; both return no crash and expected return stay positive — maintain buy.
• USUnvGradeBond — Records a loss for the week; moves to rally state; expected return improves — downgrade to sell.
• Technology ETF – Moves down for the week and loses to its large cap growth cohort; remains a big loser relative to the market for the YTD period; stays in rally mode; return no crash goes negative — downgrade to sell.
• HealthCare ETF – records a loss for the week; stays in rally state; return no crash improves but stays negative — maintain sell.
• Bitcoin – The cryptocurrency moved up for a sixth week; maintains crash status; both return no crash and expected return improve — 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.