What are the projections for Equity ETFs using three and five years of historical data? The projections based on five-years of historical data spans the “Great Recession of 2008″ while the three-years of historical data includes one of the better bull markets of recent memory. With this historical context, we can almost visualize the projections for the following “Delta Factor” data tables. First, the six to twelve months projections based on three years of data.
Delta Factor – Three Years: Knowing that the “Delta Factor” is based on reversion-to-the-mean analysis, it should come as no surprise that most of the ETFs show up as a sell or no better than a hold as we look out over the next six to twelve months. Why is that? If an ETF or stock experienced a great run over the last three years, there is a slim chance it will continue to repeat that same or similar performance going forward. The odds are against another strong performance and that is why we do not see any Buy signals for the included Equity ETFs.
Delta Factor – Five Years: As we move out to five years of historical data, we being looking at data just about the time the broad markets began their decline. This data includes the valley of 2008 and early 2009 as well as the great recovery since March of 2009. With the market relatively high at this point we don’t see any great buying opportunities. Instead, the “Delta Factor” projections are telling us to hold our current positions. GLD and VSS are flashing a Sell signal as they had strong returns over this five-year period and the laws of probability are working against them going forward over the next few months. In no way does this mean neither GLD or VSS will not do well next year. Rather, the odds are against a strong repeat performance.
The “Delta Factor” is a probability argument of what the most likely scenario is for a given ETF or stock going forward over the next few months. Playing the odds at this point, for most ETFs we are in a holding pattern.