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 was up last week as risk assets faltered; the precious metal seems to be a safe haven amidst geopolitical strife but underperforms when tensions subside; ECO metrics show gold staying in a (potential) crash state; return no crash remains positive — maintain buy.
• JETS ETF – The airline ETF was up dramatically for a third week despite the rise in crude oil; ECO metrics show JETS staying in a crash state; both return no crash and expected return advance — maintain buy.
• Oil – Rose for a second week in defiance of OPEC production increases; stays in a crash state; both return no crash and expected return slip — maintain buy.
• USLargeCapGrowth – The style index was down marginally for the week but outperformed the market; stays in rally mode; both return no crash and expected return remain positive — maintain buy.
• USSmallCapValue – Unchanged for the week and outperforms the small cap universe; bubble type drops to a neutral mode; both return no crash and expected return remain positive — downgrade to hold.
• RealEstate ETF – The Real Estate ETF moved down during the week performing in line with the equity market; stays in rally state; both return no crash and expected return remain positive — maintain buy.
• TSLA — Moved down marginally in the latest week as CEO controversies simmered; stays in crash state; little change in metrics — maintain hold.
• USUnvGradeBond — Records a loss for the week as bonds lose their footing; stays in neutral state; return no crash goes negative — maintain hold.
• Technology ETF – Also down for the week and underperformed its large cap growth cohort; tech still well ahead of the market YTD; stays in rally mode; little change in metrics — maintain buy.
• HealthCare ETF – Moves down a small amount in the latest  week performing in line with the market; stays in rally state; both return no crash and expected return go up — maintain buy.
• Bitcoin – The cryptocurrency recorded a another huge gain in the latest week maintaining its positive momentum; stays in rally status; both return no crash and expected return go 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.