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 as the underlying precious metal continues to whipsaw; ECO metrics show gold staying in a (potential) crash state; little change in metrics — maintain buy.
• JETS ETF – The airline ETF moved up for the week and beat the market; ECO metrics show JETS staying in a neutral state; both return no crash and expected return slip — maintain hold.
• Oil – Sprang up in the latest week amidst a pattern of declines; Oil is down 7% YTD and moves to a neutral state; return no crash goes positive — upgrade to hold.
• USLargeCapGrowth – The style index advanced smartly in the latest week and beat the market; hence growth outperformed value; stays in rally mode; both return no crash and expected return move up — upgrade to buy.
• USSmallCapValue – Moves up for the week and outperforms the small cap universe; bubble type stays in rally mode; both return no crash and expected return slip — maintain buy.
• RealEstate ETF – The Real Estate ETF eked out a gain for the week and underperformed the market; stays in neutral state; both return no crash and expected return move up — maintain hold.
• TSLA — Crushed in the latest week on CEO controversies; stays in crash state; return no crash goes negative– downgrade to hold.
• USUnvGradeBond — Records a loss for the week; stays in neutral state; return no crash drops — maintain hold.
• Technology ETF – Moves up big for the week and hammers its large cap growth cohort; is now ahead of the market for the YTD period; stays in rally mode; return no crash goes positive — upgrade to buy.
• HealthCare ETF – records a decent gain for the week and beats the market (for once); stays in rally state; both return no crash and expected return slip — maintain buy.
• Bitcoin – The cryptocurrency recorded a small gain in the latest week continuing its series of positive moves; stays in rally status; return no crash goes 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.