Our composite indicator that assesses the strength in the trends of gold,
10 year Treasury yields, and crude oil will remain in the extreme zone by the
end of the week. This represents a headwind for equities.
Figure 1 is a weekly chart of the S&P500 and the indicator is shown in
the lower panel. If you had been so smart to only "buy" the S&P500 during
those times when the indicator was extreme, then you would get those trades
seen in figure 1. Winning trades are in green; the losing trades are noted
by the red trend line. Since the March, 2009 low, the indicator has been at
or in the extreme zone 6 times. If you bet long on the S&P500 when the
indicator was extreme, these 6 trades resulted in 3 losses (-4.99%, -2.24%,
-0.78%) and 3 wins (1.06%, 0.35%, 0.04%). The winning trades essentially were
multi-week trading ranges for the S&P500. During the past 12 months when
the indicator was in the extreme zone, the S&P500 either went down or side
ways.
Figure 1. S&P500/ weekly
For a more comprehensive look at this indicator and how stocks under perform
when the indicator is extreme, I refer you to the following articles:
Disclaimer: Guy M. Lerner is the editor and founder
of The Technical Take blog. His commentary on the financial markets
is based upon information thought to be reliable and is not meant as investment
advice. Under no circumstances does the information in his columns represent
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