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 down marginally as risk assets across the board were mostly down; ECO hedge’s efficacy in timing the precious metal has stumbled as of late; ECO metrics show gold staying in a rally state; little change in metrics — maintain buy.
• JETS ETF – The airline ETF was down considerably for the week as losses mount to 22% in the past ten weeks; ECO metrics show JETS staying in a rally state; both expected return and return no crash go further into the red — maintain sell.
• USLargeCapGrowth – The style index posted a big loss for the week giving back the past 4our weeks of gains; value stocks once again outperformed growth handily; stays in rally mode; return no crash fell but expected return was flat — downgrade to hold.
• USSmallCapValue – The high book-to-price small cap universe recorded a loss for a sixth week but beat the growth side of the small cap market; bubble type stays in crash mode; return no crash improves but expected return weakens — maintain buy.
• RealEstate ETF – The Real Estate ETF was up after ten weeks of losses and beat the overall market as rates finally took a breather from their upward climb; stays in a rally state; expected return goes positive — upgrade to buy.
• TSLA — The vehicle maker was beaten down for the week; extreme volatility persists; stays in a rally state; both expected return and return no crash slip — maintain buy.
• USUnvGradeBond — This bond grouping was up sharply for a second as credit (and rates) caught a bid; stays in a rally state; both expected return and return no crash improve but stay negative — maintain sell.
• Technology ETF – XLK was up down big in the latest week giving up seven weeks of gains; underperformed its large cap growth cohort quite a bit; tech maintaining its #2 position behind energy stocks for the YTD; both expected return and return no crash stay positive — maintain buy.
• HealthCare ETF – Healthcare posted a big gain for a second week as rotation out of tech continued in earnest; stays in a crash state; return no crash rose and expected return was flat — 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.