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.

Wherever one invests, our timing tools have shown benefits across a wide variety of assets.

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ECO Bubble Predictions

• Gold – Punishing week as high correlation with bonds persists; ECO metrics indicate move from crash to neutral state; expected return and return no correction stay in the red — upgrade to hold.
• JETS ETF – Down for the week and underperforms the overall large cap universe again; moves up to rally state; expected return and return no correction improve — maintain sell.
• Oil – Ekes out a gain in the past week continuing its upward trajectory; oil now represents one of the best performing assets YTD; stays in rally state; expected return and return no correction slip — maintain buy.
• USLargeCapGrowth – Loses for the week but beats value again; stays in crash mode; little change in metrics — maintain sell.
• USSmallCapValue – Moves up for the week but loses out to its small cap growth counterpart; expected return and return no correction drop further into the red — maintain sell.
• RealEstate ETF – Pummeled for the week as interest sensitivity comes home to roost; maintains rally state; expected return and return no correction drop further into the red — maintain sell.
• TSLA – Outperforms equity market for the week and posts a nice gain; stays in crash state; little change in metrics — maintain sell.
• USUnvGradeBond — Moves down for the week again and underperforms equities; maintains crash state; expected return and return no correction improve — maintain sell.
• Technology ETF – Slight loss for the week but beats the market; maintains crash state; expected return and return no correction improve — maintain sell.
• HealthCare ETF – Drops for the week and underperforms the market; stays in rally state; expected return and return no correction improve — maintain sell.
• Bitcoin – Up for a fourth week after a string of losses; maintains crash state; expected return and return no correction drop — 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.