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; both return no crash and expected return go positive — upgrade to buy.
• JETS ETF – The airline ETF dropped after four weeks of strong gains as oil rebounded; ECO metrics show JETS staying in a crash state; both expected return and return no crash slip — maintain buy.
• USLargeCapGrowth – The style index gained for a second week; growth stocks dramatically outperformed the market and value stocks; stays in rally mode; both return no crash and expected return go positive — upgrade to buy.
• USSmallCapValue – The high book-to-price small cap universe moved down in the last week and underperformed the small cap universe; bubble type stays in crash mode; expected return rises but return no crash falls — maintain buy.
• RealEstate ETF – The Real Estate ETF posted a negative return for the week and lost out to the equity market; stays in a crash state; return no crash goes negative — maintain buy.
• TSLA — The vehicle maker rose strongly for a second week; volatility persists; stays in a rally state; expected return goes positive and return no crash moves up — maintain buy.
• USUnvGradeBond — This bond grouping fell for a second week; stays in a rally state; both return no crash and expected return go negative — downgrade to hold.
• Technology ETF – XLK jumped in the latest week as rotation into tech revived; tech’s lead as the the clear winner in the rebound after the Middle East/Oil shock to the markets reappears; outperformed its large cap growth cohort dramatically; tech back in the lead over energy as the YTD stock market winner; stays in a crash mode; return no crash improves but expected return drops — maintain buy.
• HealthCare ETF – Healthcare recorded a big drop for the week after two strong weeks; stays in a crash state; return no crash rises — 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.