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 – The underlying precious metal was down marginally in the past week; ECO metrics show gold staying in a (potential) crash state; expected return and return no correction both dip — maintain buy.
• JETS ETF – The airline ETF moved down a bit in the last week after exhibiting strong recent price momentum; ECO metrics show JETS staying in crash state; return no correction drops and expected return goes negative — downgrade to hold.
• Oil – Oil sured in the past week on geopolitical concerns; stays in rally state; return no correction goes positive — maintain hold.
• USLargeCapGrowth – Eked out a gain in the past week and performs in line with the broader stock market; beats value stocks; stays in crash mode; both expected return and return no correction slip — maintain buy.
• USSmallCapValue – Down for the week and gets beaten by its growth counterpart; rotation favoring value fades; return no correction drops — maintain hold.
• RealEstate ETF – Down for a third week and loses out to the broad market return; both expected return and return no correction deteriorate — downgrade to sell.
• TSLA — Pushed down for the week after a series of gains; stays in crash state; both expected return and return no correction drop — downgrade to sell.
• USUnvGradeBond — Posts a fairly sizable drop for the week on positive jobs report; both expected return and return no correction go negative — maintain sell.
• Technology ETF – Records a minor gain for the week but is still a loser relative to the market YTD; underperforms its large cap growth cohort again; stays in crash state; both expected return and return no correction move up — maintain buy.
• HealthCare ETF – Tiny gain for the week and underperforms the market; YTD shortfall versus the market persists; stays in crash state; return no correction dips — maintain buy.
• Bitcoin – Records a big loss for the week as high volatility persists; maintains crash state; little change in metrics — maintain hold.

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.