Can UIS Risk Ratings Predict Crashes?
News Event Crashes are unpredictable. UIS Ratings do not predict News Event Crashes.
Bear and Big Bear Crashes are predictable, as they occur as a result of a major fall in business Earnings.
The UIS Risk Ratings indicate:
- A Bear Crash is imminent if the UIS Risk Rating is < -5. Note: a Risk Rating of less than -1.45 indicates a high probability of a big fall or Bear Crash.
- A Big Bear Crash is imminent if the UIS Risk Rating is < -10.
Applying the above criteria since 1997 has correctly predicted ALL 9 Bear and Big Bear Crashes.
The most important feature of the UIS Risk Ratings is that the predictions are released at least 1 month ahead of the crash occurring.
How Do the UIS Risk Ratings Work?
EPS Estimates and Actuals have been analysed in detail from 1997. The basis of the analysis was to assign a risk value to the probability of an S&P500 crash in the next month and quarter.
The EPS Estimates and Actuals were assessed with 7 criteria:
- 1Next month EPS Bear risk in the S&P500.
- 2Next 7 months bullish strength. Assess the probability of a sustained or new Up rally.
- 3Next 3 months bullish weakness. Assess any weakness in the Up trend in EPS Estimates.
- 4Next 4 to 6 months Bear risk. Assess the probability of a Bear period occurring.
- 5Next 3 months Bear risk. Assess the probability of a Bear fall.
- 6Previous month effect. Assess the impact of the previous month's EPS on the current and next months.
- 7Rebound recovery after an EPS fall. If there has been a significant recent EPS fall at the level of a high Bear risk, assess the rebound recovery probability.
For each month in the next 12, a Risk Rating is calculated. This is then used to identify months where the probability of a Bear period occurring is high.
A Risk Rating for next month of under -1.45 indicates a very high probability of a major fall in the S&P500 with a Bear period (at least 6 months before recovery).
Trading the S&P500 Using the UIS Risk Ratings
The SPY ETF has been used as a proxy for the S&P500 index, as it is readily tradable. SPY daily price changes have been converted to % changes to allow direct comparison of trend and particularly Drawdowns.
A Buy and Hold strategy has been applied from 1997. Where the UIS Risk Ratings indicate a high Bear risk with a Risk Rating below -1.45, the SPY is exited on the first day of the month.
The SPY is re-entered on the first day of the next subsequent month where the Risk Rating is above -1.45.
Chart of B&H SPY Compared to Applying the UIS RR Filter
Green line = UIS Strategy. Black line = SPY B&H.
Illustrative chart traced from source image; values are approximate and for presentation only. Past performance does not guarantee future results.
The SPY B&H Equity Line
- 1The long-term SPY trend is strongly and consistently Up. The equity at the end of 2025 was approx. 260%. This equates to an average annual B&H growth or ROI of 9.5%.
- 2The original SPY had 2 big Bear crashes, in 2001 and 2008, involving falls of -58% to -70%. Smaller crashes occurred in 2011, 2015, 2020, 2022 and 2025.
The UIS RR Equity Line
- 1The equity line is much smoother and more consistent than the raw B&H equity line. Variation from trend, as calculated by the R-squared method, confirms a much more consistent trend.
- 2The equity at the end of 2025 was approx. 360%. This equates to an average annual equity growth or ROI of 13.4%, significantly higher than B&H.
- 3All big Bear crashes were avoided (in 2001 and 2008). Drawdowns in all SPY fall periods are very small.
Summary of Trading the SPY Using the UIS RR Filter
Simply applying the UIS RR as an exit filter for B&H trading of the SPY has a dramatic effect on trading results.
ALL Big Bear crashes were avoided and ALL Drawdowns were dramatically reduced.
The Return On Investment was much higher than Buy and Hold, with significantly less risk!
How Reliable Are the UIS Risk Ratings?
The Risk Ratings are based on the analysis of the 500 companies in the S&P500 Index. Each company releases estimates of Earnings up to 12 months ahead.
Research of S&P500 companies' Earnings Estimates has demonstrated:
- Companies' estimates of Earnings are slightly lower than the actual Earnings reported after the end of the quarter. They slightly underestimate to be conservative. Companies do not want to release worse results than estimates, to maintain management credibility.
- UIS Risk Ratings have consistently indicated all Bear crashes in the last 30 years, giving at least one month's warning.
Will the UIS Risk Ratings Perform in the Future as Markets Change?
Markets change but are somewhat cyclic. Bear and Bull markets occur in response to economic and other conditions.
Our Earnings research extends back over 100 years. The UIS Risk Ratings have been rigorously tested over the last 30 years.
During that time, the US stock market has gone through several Bull trends, Big Bear crashes and several smaller Bear crashes.
The performance of the UIS Risk Ratings over the last 30 years, through all economic conditions and wars, has demonstrated consistent results.
The S&P500 Index
The 500 biggest public companies in the USA, based on market capitalisation — and how increasing business profits drive share prices.
Read moreHistorical UIS Risk Ratings
Review the full track record of the UIS Risk Rating System dating back to 1997, showing 100% accuracy in predicting every major S&P500 Bear crash.
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Sample UIS Risk Rating Report