The main purpose of the following Special Report is to understand how bear and bull markets develop over time and how it is possible to forecast their path.
With respect to forecasting bear markets, our focus will be on non-parametric models developed following the algorithms of Bry and Boschan (1971). This will lead us to structure a buy-and-hold strategy, which recommends exiting the equity market just before major crashes and investing in cash for the duration of such bear markets. The resulting Sharpe ratio will be 0.646, over performing the benchmark equity index.
With respect to forecasting bubbles, our focus will be on the estimation of three major conditions to detect bubblish asset price behaviours. In fact, we will base our model on a Log-Periodic-Power-Law model, constructed using two major components of the behaviour of the logarithm of the asset price: a power-law growth component and a periodic component with increasing frequency.