Based on the most recent Delta Factor data, the current market is over-valued, and that is putting it mildly. I don’t think I’ve seen this many “red” projections since the market hit its 2007 highs. What I did was take both equity and bond ETFs that are commission free for TDAmeritrade clients and use percentages not all that far removed from the recommendations that come out of the Momentum-Optimization Model (MOM). The percentages are not critical as the Delta Factor calculation heavily rests on historical results and future reversion-to-the-mean calculations.
What you see in the table below is a sea of red. First examine the Future projections as compared to the Historical data. I used four years of data in this analysis. The same bloody table shows up if I use five years of data. Run your eyes down over both the Delta and Delta Factor columns. Not one buy is showing up. All bond type investments are compared with a bond standard and the equity ETFs are compared with projections from a broad market index fund. The next three to six months look grim for both equity and bond holdings. Caution is in order unless we see a sharp correction.
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The Buy-Hold-Sell recommendation table for the Kepler Portfolio also does not support excessive buying. Since last May we have been cautious buyers as the market continued to show an over-bought condition. The Bullish Percent Indicators were beginning to show cracks two weeks ago. This past week showed further weakening in both broad markets and sectors of the market.
If you are beginning investor, don’t pay attention to this information, but rather try to increase your savings. Buy more shares as the prices decline. For the retiree who is not adding new money to the portfolio, pay close attention and make an effort to protect the corpus of your portfolio. I highly recommend following the MOM plan and if you want to hedge your portfolio, buy some shares of SDS. I know this is not for everyone, but some investors will want to make an effort to reduce losses.
One important reminder to those not familiar with the Delta Factor. This metric takes a long-term look at the market and it is frequently an early indicator. In other words, it could be months before we begin to see buy signals emerging from this type of analysis.