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 up in the latest week and ECO hedge’s efficacy in timing the precious metal has been excellent as of late; ECO metrics show gold staying in a rally state; both expected return and return no crash advance — maintain buy.
• JETS ETF – The airline ETF lost ground last week as oil pushed up; ECO metrics show JETS moving to a rally state; expected return drops and return no crash goes negative — downgrade to sell.
• USLargeCapGrowth – The style index posted a sizable loss for the week as tech weakened further; growth stocks underperformed the market and value stocks; stays in rally mode; expected return improves and return no crash goes negative — downgrade to hold.
• USSmallCapValue – The high book-to-price small cap universe recorded a drop in the latest last week but beat the growth side of the small cap market; bubble type stays in crash mode; little change in metrics — maintain buy.
• RealEstate ETF – The Real Estate ETF was essentially flat for the week but beat the equity market; stays in a crash state; expected return drops but return no crash goes positive — maintain buy.
• TSLA — The vehicle maker was up big for a third week despite a generally bad showing for tech-oriented shares; volatility persists; stays in a rally state; both expected return and return no crash go up — maintain buy.
• USUnvGradeBond — This bond grouping was down slightly for the week as credit failed to catch a strong bid in a generally down stock market; stays in a rally state; expected return drops and return no crash goes negative — downgrade to sell.
• Technology ETF – XLK was down in the latest week and underperformed its large cap growth cohort; tech back to #2 position YTD as energy stocks surged in the latest week; stays in a crash mode; expected return drops and return no crash goes negative — maintain buy.
• HealthCare ETF – Healthcare jumped for the week and it positive trend continues; stays in a crash state; both return no crash and expected return stay positive — maintain buy.

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.