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 down after jumping in the prior week; ECO metrics show gold staying in a (potential) crash state; return no crash goes positive — maintain buy.
• JETS ETF – The airline ETF was up in the last week after many weeks of strong gains; ECO metrics show JETS staying in crash state; expected return goes positive — upgrade to buy.
• Oil – Oil moved down sharply in the past week as weekly returns continue to seesaw; bubble type now shows a rally state; expected return and return no correction improve — maintain hold.
• USLargeCapGrowth – The style index was up again in the past week and performed in line with the broader stock market and value stocks; return no crash rises; stays in crash mode — maintain buy.
• USSmallCapValue – Up for the week but loses out to both small stocks and small growth stocks; rotation favoring value fades; both expected return and return no correction rise — maintain buy.
• RealEstate ETF – Records another sizable gain for the past week and beats the broad market; both expected return and return no correction jump — maintain buy.
• TSLA — Records a minor drop for the week; stays in crash state; return no correction jumps but expected return goes negative — maintain buy.
• USUnvGradeBond — A powerful surge up for the week; stays in crash state; return no crash goes further negative — maintain sell.
• Technology ETF – Basically flat for the week and is still a substantial loser relative to the market YTD; underperforms its large cap growth cohort and the broad market; stays in crash state; little change in metrics — maintain buy.
• HealthCare ETF – Records a large gain for the week as the ETF continues its rebound from earlier prospective Cabinet pick hit; beats the market; YTD shortfall versus the market still looms; stays in a crash state; both expected return and return no correction less attractive now — maintain buy.
• Bitcoin – Records a small loss after fervor from the election cools; maintains crash state; expected return moves up but return no crash slips — 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.