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 in the latest week; ECO metrics show gold staying in a rally state; return no crash rises but expected return goes negative — maintain sell.
• JETS ETF – The airline ETF surged for a second week on reduced tensions in the Middle East; ECO metrics show JETS staying in a crash state; both expected return and return no crash move up — maintain buy.
• USLargeCapGrowth – After two weeks of losses, the style index advanced for the week; growth stocks outperformed the market and value stocks; stays in rally mode; both expected return and return no crash go positive — upgrade to buy.
• USSmallCapValue – The high book-to-price small cap universe moved down slightly in the last week and lost to the small cap universe; bubble type stays in crash mode; both expected return and return no crash slip — maintain buy.
• RealEstate ETF – The Real Estate ETF posted a sizable negative return for the week losing to the equity market; stays in a crash state; both expected return and return no crash rise — upgrade to buy.
• TSLA — The vehicle maker dropped for the week; volatility persists; stays in a rally state; return no crash goes positive and expected return moves up — upgrade to buy.
• USUnvGradeBond — This bond grouping was flat for the week; stays in a rally state; return no crash goes positive and expected return moves up — upgrade to buy.
• Technology ETF – XLK jumped for the week; Tech reestablishes itself as the the clear winner in the rebound after the Middle East/Oil shock to the markets; outperformed its large cap growth dramatically; tech now well ahead of energy as the YTD stock market winner; stays in a crash mode; return no crash goes further negative — maintain buy.
• HealthCare ETF – Healthcare reported a big loss for the week; moves to a neutral state; return no crash goes negative and expected return slips — downgrade to hold.

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.