Delta Factor: Where We Are Today

by: Lowell Herr

Yesterday, a "Delta Factor" question showed up so I thought I would show Platinum members what the projections are looking like after the recent declines in the DJI average.

For new members, what we are looking at is a worksheet that uses data from Geoff Considine's Quantext Portfolio Planner (QPP). In the historical column we have the performance over the last four years. In the Future column the QPP software uses a reversion-to-the-mean calculation to project what is likely to happen going forward. Think in terms of the next six to 12 months. What I do with this data is try to determine how these different ETFs and stocks are likely to perform with respect to Vanguard's Total Market Index Fund, VTSMX. When the market has been at or near a bottom, the Delta Factor column shows Buy. When the market is at or near a top, the Delta Factor indicators show up as Sell. Most of the time the Delta Factor gives us a Hold signal, and that is what we now see.

(Click to enlarge)

What we have in the above screen shot is a fair representations of ETFs and four stocks. Don't pay a lot of attention to TIP and TLT as they need to be compared to a different reference. All the other ETFs and stocks are compared to the VTSMX for this data. What we are seeing at this point is a "Hold" for all these investments. Should the market continue to decline, we will begin to see a few Buy signals show up. VEA and RWX are two to watch.

A major assumption in this analysis is that the S&P 500 is projected to return 7.0% over the next six to 12 months.

The above projections of Hold were the same at the end of the first quarter of this year. I posted a lot of research on the Delta Factor over at this site, but the site is under construction. You can see some of the data, but you may be interrupted from time to time.