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 positive momentum failed to keep up with other assets and sank in the holiday-shortened week; ECO metrics show gold staying in a (potential) crash state; return no crash dips — maintain buy.
• JETS ETF – The airline ETF slipped for the week but outperformed the market; ECO metrics show JETS staying in a crash state; return no crash goes negative — downgrade to hold.
• Oil – WTI crude eked out a gain for a second week; stays in a rally mode; both expected return and return no crash move down — downgrade to sell.
• USLargeCapGrowth – The style index performed poorly in the trailing week as tech stocks lost out to the market; stays in rally mode; expected return goes positive and return no crash improves — upgrade to buy.
• USSmallCapValue – The high book-to-price small cap universe was down in the latest week but beat small cap growth universe; bubble type stays in crash mode; both expected return and return no crash move down — maintain buy.
• RealEstate ETF – The Real Estate ETF fell for a fifth week but beat the overall market; stays in rally state; expected return goes negative — downgrade to sell.
• TSLA — The vehicle maker fell big for the week after a series of large gains; stays in crash state; both expected return and return no crash fall — maintain buy.
• USUnvGradeBond — This bond grouping showed weakness in the latest week; moves to a neutral state; expected return goes positive — maintain hold.
• Technology ETF – XLK lost ground in the year’s latest week underperforming both its large cap growth cohort and the market; tech is the best performing sector in the trailing year; stays in a crash mode; return no crash goes negative — downgrade to hold.
• HealthCare ETF – Moved down after a series of gains; is no longer the worst sector for the trailing year (see staples); stays in crash state; both expected return and return no crash improve — maintain buy.
• Bitcoin – Amidst extreme volatility, the cryptocurrency rose for the week as the rout seemed to pause; stays in rally state; return no crash improves but expected return drops — maintain 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.