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 up again in the last week continuing its string of gains; ECO metrics show gold staying in a (potential) crash state; little change in metrics — maintain buy.
• JETS ETF – The airline ETF was up after five weeks of losses and beat the market; ECO metrics show JETS staying in a crash state; both expected return and return no crash improve — maintain hold.
• Oil – Oil rebounded modestly after weeks of losses; bubble type stays in crash state; both expected return and return no crash slip — maintain sell.
• USLargeCapGrowth – The style index eked out a gain in the prior week but underperformed the market; growth stocks were beaten by value stocks once again; stays in rally mode; return no crash improves — maintain sell.
• USSmallCapValue – The style index was up slightly in the past week and performed more or less in line with the small cap universe; rotation favoring value somewhat fizzles somewhat in small caps; bubble type stays in rally state; both expected return and return no crash fall — maintain hold.
• RealEstate ETF – Drops for a third week and loses to the market; return no crash goes positive; both expected return and return no crash improve — maintain hold.
• TSLA — Down for nine straight weeks bringing recent returns down 42%; stays in crash state; return no crash goes further into the red — maintain hold.
• USUnvGradeBond — Records a decent gain for the week; stays in crash state; little change in metrics — maintain buy.
• Technology ETF – Basically flat for the week but loses to its large cap growth cohort; remains a big loser relative to the market YTD; stays in rally mode; return no crash improves but expected return goes negative — maintain sell.
• HealthCare ETF – Records a decent gain for the week as health care rotation appears more real; stays in rally state; both expected return and return no crash improve — maintain sell.
• Bitcoin – Cryptocurrency was unchanged for the week; correlation with risk assets persists; whipsawing continues; maintains crash state; both expected return and return no crash improve — 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.