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 correction rises — maintain buy.
- JETS ETF – The airline ETF was down marginally in the last week after several weeks of strong price momentum; ECO metrics show JETS staying in crash state; both expected return and return no correction move up — maintain buy.
- Oil – Oil jumped in the past week as weekly returns seesaw; metrics show a moves up to a rally state; both expected return and return no correction move up — maintain hold.
- USLargeCapGrowth – Ekes out a positive return in the past week and outperforms the broader stock market; trounces value stocks for the week; stays in crash mode; both expected return and return no correction fall– maintain buy.
- USSmallCapValue – Down big for the week and loses out to both small stocks and small value stocks; rotation favoring value falters; return no correction rises but expected return goes negative — downgrade to hold.
- RealEstate ETF – Down big in the past week and loses to the broad market return; expected return and return no correction both fall precipitously — downgrade to sell.
- TSLA — Records a gigantic gain for the week on earnings release; stays in crash state; both expected return and return no correction go positive — upgrade to buy.
- USUnvGradeBond — Down big for the the week; return no correction moves further into the red — maintain sell.
- Technology ETF – Records a marginal loss for the week and is still a loser relative to the market YTD; loses out to its large cap growth cohort; stays in crash state; both expected return and return no correction rise — maintain buy.
- HealthCare ETF – Big loss for the week and loses to the market; YTD shortfall versus the market persists; stays in crash state; little change in metrics — maintain buy.
- Bitcoin – Records a large loss for the week as high volatility persists; maintains crash state; both expected return and return no correction move up — 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.
ECO scores are an important input in the AugurMax investment process. A powerful, cutting edge asset allocation engine is created when combining ECO scores with the RisKontroller optimizer.