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 stayed in reverse gear for a second week after its record run; ECO metrics show gold staying in a (potential) crash state; both return no crash and expected return move down — maintain buy.
• JETS ETF – The airline ETF dipped sharply for the week after two weeks of decent gains; ECO metrics show JETS staying in a crash state; return no crash falls quite a bit into the red and expected return moves up slightly — maintain buy.
• Oil – Volatility continues as WTI crude dropped nearly a percent in the latest week; stays in a rally state; return no crash goes positive — maintain hold.
• USLargeCapGrowth – The style index was pushed up for a third week along with the overall market and beat value stocks; stays in neutral mode; both return no crash and expected return move up — maintain hold.
• USSmallCapValue – Plummeted in the latest week as small caps struggled vis-a-vis larger stocks; underperformed the small cap growth index; bubble type stays in crash mode; return no crash goes negative and expected return moves down — maintain buy.
• RealEstate ETF – The Real Estate ETF lost in the past week and dramatically underperformed the broader equity market indices; moves to rally state; return no crash goes negative and expected return slips — maintain hold.
• TSLA — Stock shot up for the week as Musk committed to spending more time managing the auto maker; stays in crash state; both return no crash and expected return move up — maintain buy.
• USUnvGradeBond — Down move for the week wipes out the prior two weeks of gains; stays in crash state; return no crash goes negative and expected return slips — downgrade to hold.
• Technology ETF – XLK was up big for a third week on earnings beats; tech performed in line with its large cap growth cohort and it is well ahead of the market YTD; stays in a crash mode; both return no crash and expected return move up — maintain buy.
• HealthCare ETF – Moves down in the trailing week versus a positive broad market; is no longer the worst sector YTD (see consumer staples); stays in rally state; both return no crash and expected return move down — maintain buy.
• Bitcoin – The cryptocurrency dropped for the week after the prior week’s gain; stays in rally state; return no crash moves up but expected return goes negative — downgrade to 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.