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 fell in the latest week for the first time in 3 weeks; ECO metrics show gold staying in a (potential) crash state; return no crash falls slighty — maintain buy.
• JETS ETF – The airline ETF fell for the first time in 5 weeks and lost out to the market big time; ECO metrics show JETS moving to a rally state; both expected return and return no crash drop — downgrade to sell.
• Oil – WTI Oil jumped amidst extreme volatility from the Middle East conflict; stays in a crash state; both expected return and return no crash are negative and drop further — maintain hold.
• USLargeCapGrowth – The style index rose in line with the market in the latest week: stays in rally mode; both expected return and return no crash slip — maintain buy.
• USSmallCapValue – The high book-to-price small cap universe was up marginally in the latest week and performed in line with the small cap universe; bubble type stays in crash mode; return no crash drops but expected return advances — maintain buy.
• RealEstate ETF – The Real Estate ETF moved down for the week and failed to keep up with the market; stays in a crash state; both expected return and return no crash slip – downgrade to hold.
• TSLA — The vehicle maker got hammered for the week on its earnings report; volatility persists; moves to a rally state; return no crash goes positive — maintain buy.
• USUnvGradeBond — This bond grouping moved down for the week even while risk assets advanced; stays in a neutral state; both expected return and return no crash fall — downgrade to hold.
• Technology ETF – XLK soared for a fourth week and continues to lead risk assets in the rebound after the Middle East shock to the markets; outperformed its large cap growth cohort handily; tech now back to being the best performing sector in the trailing year and is killing it YTD; stays in a crash mode; both expected return and return no crash move up — upgrade to buy.
• HealthCare ETF – Healthcare dove for the week and dramatically underperformed the market; moves to a rally state; return no crash goes negative — downgrade to sell.
• Bitcoin – Amidst extreme volatility, the cryptocurrency eked out a gain in the latest week; stays in rally state; both expected return and return no crash go down — 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.