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 rose in the latest week; ECO metrics show gold staying in a (potential) crash state; return no crash goes positive but expected return falls — maintain buy.
• JETS ETF – The airline ETF soared in the past week as volatility persists over a hectic geopolitical situation; ECO metrics show JETS moving to a neutral state; return no crash goes positive — upgrade to hold.
• USLargeCapGrowth – The style index advanced for a sixth week and beat both the market and value stocks; stays in rally mode; both expected return and return no crash fade — maintain buy.
• USSmallCapValue – The high book-to-price small cap universe rose for a seventh week performing in line with the small cap universe; bubble type stays in crash mode; return no crash slips but expected return rises — maintain buy.
• RealEstate ETF – The Real Estate ETF moved up for the week but failed to keep up with the market; stays in a crash state; both expected return and return no crash rise – maintain hold.
• TSLA — The vehicle maker jumped up for the week on AI hopes; volatility persists; moves to a neutral state; return no crash moves up but expected return slides — maintain buy.
• USUnvGradeBond — This bond grouping moved up for the week as risk assets advanced; stays in a rally state; both expected return and return no crash go further negative — maintain sell.
• Technology ETF – XLK soared for a sixth week as many tech companies reported large earnings beats; tech continues to lead risk assets in the rebound after the Middle East shock to the markets; outperformed its large cap growth cohort handily; tech now back to being the best performing sector in the trailing year and is killing it YTD; stays in a crash mode; both expected return and return no crash go down — maintain buy.
• HealthCare ETF – Healthcare failed to show up for the party as investors rewarded risky stocks; stays in a rally state; expected return goes negative and return no crash stays negative — downgrade to sell.

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.