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 in the past week; ECO metrics show gold staying in a (potential) crash state; return no crash improves but expected return slips — maintain buy.
• JETS ETF – The airline ETF fell in the prior week in an up market; ECO metrics show JETS staying in a crash state; little change in metrics — maintain buy.
• Oil – Oil recorded a fifth week of gains in the latest week; bubble type stays in crash state; return no crash improves but expected return slips — downgrade to hold.
• USLargeCapGrowth – The style index moved up big in the prior week but underperformed both the broader stock market and value stocks; stays in crash mode; return no crash goes negative — maintain buy.
• USSmallCapValue – The style index surged in the past week and beat the small cap universe; rotation favoring value resurfaces; return no crash improves but expected return slips — upgrade to buy.
• RealEstate ETF – Records a big gain for the past week and beats the market handily; both return no crash and expected return improve — maintain sell.
• TSLA — Records a huge gain for the week recouping the prior two weeks of losses; stays in crash state; both return no crash and expected return improve — maintain hold.
• USUnvGradeBond — Records a gain after five weeks of losses; stays in crash state; little change in metrics — maintain buy.
• Technology ETF – Gets pushed up along with the market for the week but can’t keep up with it;  performs in line with its large cap growth cohort; remains a loser relative to the market for the trailing year; stays in neutral state; expected return goes negative — likely buy.
• HealthCare ETF – HealthCare was up for the week but loses to the market; stays in rally state; return no crash improves but expected return slips — maintain hold.
• Bitcoin – Records a huge gain for the week as whipsawing continues; maintains crash state; return no crash goes positive but expected return slips — upgrade to 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.