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 regained its momentum in the latest week; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash rise — maintain buy.
• JETS ETF – The airline ETF advanced sharply for a third week and beat the market handily as risk assets went south; ECO metrics show JETS staying in a crash state; both expected return and return no crash advance — upgrade to buy.
• Oil – WTI crude fell big in the latest week; stays in a rally mode; return no crash goes negative — maintain hold.
• USLargeCapGrowth – The style index lost quite a bit in the most recent week as the market punished tech stocks; moves to rally mode; return no crash slips — maintain buy.
• USSmallCapValue – Jumped up in the latest week and beat the small cap universe; bubble type stays in crash mode; little change in metrics — maintain buy.
• RealEstate ETF – The Real Estate ETF underperformed the down market; stays in rally state; return no crash continues down — maintain hold.
• TSLA — The vehicle maker manged to beat the market with a positive return in the latest week as tech crumbled; stays in crash state; return no crash falls precipitously — maintain buy.
• USUnvGradeBond — Shows correlation with risky assets and moves down for the week; moves to neutral state; return no crash goes negative — downgrade to hold.
• Technology ETF – XLK got rocked for the week and underperformed its large cap growth cohort; tech still way ahead of the market YTD; moves to a neutral mode; return no crash moves up — downgrade to hold.
• HealthCare ETF – Moves up for the week; is no longer the worst sector YTD (see real estate); stays in crash state; return no crash advances — maintain buy.
• Bitcoin – Amidst extreme volatility, the cryptocurrency eked out a gain for the week, the rout in cryptocurrencies persists; stays in rally state; expected return moves 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.