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 last week after a long stretch of gains; ECO metrics show gold staying in a (potential) crash state; return no crash goes negative — maintain buy.
• JETS ETF – The airline ETF rallied in the latest week after a series of back and forth gains/losses; ECO metrics show JETS staying in a rally state; both expected return and return no crash improve but stay negative — maintain sell.
• Oil – Recorded a small move down in the latest week; Oil moves up to a rally state from a neutral state; return no crash improves but stays negative while but expected return goes negative — downgrade to sell.
• USLargeCapGrowth – The style index skyrocketed in the prior week and trounced the market; value stocks underperformed growth stocks by a wide margin; stays in rally mode; return no crash goes positive — upgrade to buy.
• USSmallCapValue – Shows continuing strength and jumps up in the past week but lost out to the small cap universe; rotation favoring value fades; bubble type stays in rally mode; return no crash goes positive — upgrade to buy.
• RealEstate ETF – Up modestly for the week and dramatically underperforms the market; advances to a rally state from its prior neutral state; return no crash jumps up to the positive side — upgrade to buy.
• TSLA — Moves up dramatically in the latest week after earnings release and halts its downward spiral; stays in crash state; both expected return and return no crash go positive — maintain hold.
• USUnvGradeBond — Records a gain for the week along with other bonds; maintains neutral state; return no crash goes positive but and expected return dips — downgrade to hold.
• Technology ETF – Pops up for the week and beats its large cap growth cohort; remains a big loser relative to the market YTD as well as for the trailing one year period; stays in rally mode; both return no crash and expected return jump to the positive side — upgrade to buy.
• HealthCare ETF – Moves up for the week but underperforms the market; stays in rally state; both return no crash and expected return jump to the positive side — upgrade to buy.
• Bitcoin – The cryptocurrency thrived in the risk-on environment in the latest week; correlation with risk assets reignites; maintains its rally status; both expected return and return no crash improve — upgrade to 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.