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 – The positive reversed in the last week as the underlying precious metal lost the prior week’s gain and then some; ECO metrics show gold staying in a (potential) crash state; return no crash stays negative — maintain buy.
• JETS ETF – The airline ETF rallied in a big way for a fourth week in the risk-on environment; ECO metrics show JETS staying in a crash state; both expected return and return remain positive — maintain buy.
• Oil – Recorded a positive return the latest week amidst a pattern of declines; Oil is down 11% YTD and stays in a rally state; return no crash and expected return both improve but stay negative — maintain sell.
• USLargeCapGrowth – The style index skyrocketed in the prior week and beat the market; hence growth outperformed value; stays in rally mode; both expected return and return no crash stay positive — maintain buy.
• USSmallCapValue – Moves up now for a sixth week but gets beaten by the small growth style index; rotation favoring value fizzles again; bubble type stays in rally mode; both expected return and return no crash stay positive — maintain buy.
• RealEstate ETF – The Real Estate weekly return registered a gain but the ETF underperformed the market; stays in a neutral state; return no crash goes positive — maintain hold.
• TSLA — Surged higher in the latest week recording a double digit gain and beat the market dramatically; stays in crash state; both return no crash and expected return stay positive — maintain buy.
• USUnvGradeBond — Records a gain for the week; maintains neutral state; expected return goes positive — maintain hold.
• Technology ETF – Moves up big for the week and beats its large cap growth cohort; climbs back from its status as a big loser relative to the market for the YTD period; stays in rally mode; both return no crash and expected return stay positive — maintain buy.
• HealthCare ETF – Marginally positive for the week as UNH (with its large weight) got hammered; stays in rally state; return no crash stays negative — maintain sell.
• Bitcoin – The cryptocurrency moved up for a fifth week; maintains crash status; both return no crash and expected return improve — 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.