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 underlying precious metal was up in the past week; ECO metrics show gold staying in a (potential) crash state; little change in metrics — maintain buy.
• JETS ETF – The airline ETF gave back the prior week’s gain in a down market; ECO metrics show JETS staying in crash state; both return no crash and expected return go negative — downgrade to hold.
• Oil – Oil had a huge bounce back in the latest week; bubble type stays in crash state; return no crash goes negative — maintain sell.
• USLargeCapGrowth – The style index gave back the prior week’s gain and underperformed both the broader stock market and value stocks; both expected return and return no crash moved down; stays in crash mode — maintain buy.
• USSmallCapValue – Style index produced a gain for the week but underperformed small stocks and small growth stocks; rotation favoring value not strong; return no crash improves — maintain hold.
• RealEstate ETF – Records a decent gain for the past week and beats the market; both return no crash and expected return improve — maintain sell.
• TSLA — Records a large loss for the week as post-election fervor fades; stays in crash state; both return no crash and expected return drop — maintain hold.
• USUnvGradeBond — Yet another loss for the week; stays in crash state; little change in metrics — maintain buy.
• Technology ETF – Gets pushed down with the market for the week and gets beaten by both the market and its large cap growth cohort; remains a loser relative to the market for the trailing year; stays in crash state; both expected return and return no correction improve — maintain buy.
• HealthCare ETF – HealthCare was essentially flat for the week and beat the market; stays in rally state; little change in metrics — maintain hold.
• Bitcoin – Records another gain for the week as negative correlation of crypto with riskier assets comes to the fore; maintains crash state; both return no crash and expected return drop — 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.