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 down a fair amount for a second week as real rates advanced; ECO hedge’s efficacy in timing the precious metal stumbled as of late but has been quite good in the trailing 10 weeks; ECO metrics show gold staying in a rally state; both expected return and return no crash remain negative — maintain sell.
• JETS ETF – The airline ETF gave back all of the prior week’s gain as oil treaded water; ECO metrics show JETS staying in a rally state; both expected return and return no crash sink further into the red — downgrade to sell.
• USLargeCapGrowth – The style index posted a gain for the week on another megacap AI rally; value stocks fell; stays in rally mode; little change in metrics — maintain buy.
• USSmallCapValue – The high book-to-price small cap universe recorded a loss for a fourth week and lost out to the growth side of the small cap market; bubble type stays in crash mode; return no crash improves but expected return slips — maintain buy.
• RealEstate ETF – The Real Estate ETF was down for a tenth week and lost to the overall market as rates continued their upward trajectory; stays in a rally state; expected return goes negative and return no crash goes further into the red — downgrade to sell.
• TSLA — The vehicle maker was down for the week; volatility persists; stays in a rally state; both expected return and return no crash go down — maintain buy.
• USUnvGradeBond — This bond grouping was down sharply for the week as credit continued its malaise; stays in a rally state; both expected return and return no crash go further negative — maintain sell.
• Technology ETF – XLK was up big time in the latest week with a now six week stretch of gains; outperformed its large cap growth cohort handily; tech maintaining its #2 position behind energy stocks for the YTD; both expected return and return no crash jump — maintain buy.
• HealthCare ETF – Healthcare posted a big loss for the week; stays in a crash state; little change in metrics — 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.