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’s strong momentum continued in the latest week; ECO metrics show gold staying in a (potential) crash state; both expected return and return no crash move up — maintain buy.
• JETS ETF – The airline ETF jumped for the week on earnings and higher passenger traffic; ECO metrics show JETS staying in a crash state; return no crash goes positive and expected return rises — maintain buy.
• Oil – WTI crude moved down after many weeks in the black; moves to a neutral state; both expected return and return no crash drop — maintain buy.
• USLargeCapGrowth – The style index performed poorly for a fourth week as the tech rout gained steam; stays in rally mode; both expected return and return no crash continue dropping — maintain sell.
• USSmallCapValue – The high book-to-price small cap universe surged in the latest week and beat small cap growth again; bubble type stays in crash mode; both expected return and return no crash jump –maintain buy.
• RealEstate ETF – The Real Estate ETF moved up in the trailing week in an overall down market; moves to a neutral state; both expected return and return no crash rise — maintain hold but hedge bet recommendation remains at its high.
• TSLA — The vehicle maker was hammered for a second week as see-saw volatility persists; stays in a crash state; return no crash plunges further into the red — maintain buy.
• USUnvGradeBond — This bond grouping moved up in the latest week; stays in a neutral state; expected return improves but return no crash goes negative — maintain hold.
• Technology ETF – XLK lost ground for a fourth week and underperformed the market but performed in line with its large cap growth cohort; tech no longer the best performing sector in the trailing year; moves to a rally mode; expected return improves but return no crash goes negative — downgrade to sell.
• HealthCare ETF – Moved up in the latest week after a series of back and forth moves; stays in crash state; return no crash goes positive — downgrade to hold.
• Bitcoin – Amidst extreme volatility, the cryptocurrency got pummeled in the trailing seek as the crypto downtrend continues unabated; stays in rally state; both expected return and return no crash stay 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.