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 plunged in the latest week; ECO metrics show gold staying in a rally state; return no crash falls but expected return rises — downgrade to sell.
• JETS ETF – The airline ETF plummeted in the latest week after several weeks of gains; ECO metrics show JETS staying in a crash state; both expected return and return no crash dip — maintain buy.
• USLargeCapGrowth – The style index could not advance for a tenth week and dropped quite a bit; growth stocks underperformed the market and value stocks; stays in rally mode; both expected return and return no crash rise — maintain buy.
• USSmallCapValue – The high book-to-price small cap universe moved down in the last week but beat the small cap universe; bubble type stays in crash mode; expected return drops and return no crash goes negative — maintain buy.
• RealEstate ETF – The Real Estate ETF bucked the downward move in risk assets and advanced for the week beating the equity market handily; stays in a crash state; expected return rises but return no crash goes negative — maintain buy.
• TSLA — The vehicle maker sank for the week; volatility persists; moves to a rally state; return no crash falls precipitately as expected return dips — downgrade to sell.
• USUnvGradeBond — This bond grouping fell for the week as risk assets failed; stays in a rally state; return no crash drops — maintain buy.
• Technology ETF – XLK nose-dived for the week as Friday’s jobs report brought a heightened chance for a rate hike by the FED; after being the clear winner in the rebound after the Middle East shock to the markets, tech lead risk assets down; underperformed to its large cap growth dramatically; tech now subservient to energy as the YTD stock market winner; stays in a crash mode; expected return jumps but return no crash slips — maintain buy.
• HealthCare ETF – Healthcare reported a big gain for the week; says in a crash state; both expected return and return no crash rise — 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.