On November
8, 2010, our composite indicator that looks at the trends in gold,
crude oil and yields on the 10 year Treasury registered an extreme value.
At that time, I wrote: "A strategy that combines this "fundamental" filter
with the 40 week moving average has given a sell signal." With rising
Treasury yields and persistence in the trends in gold and crude oil, the
composite indicator remains in the extreme zone. This is not the time to
buy equities. For those keeping a scorecard at home and for those who are
buying the bullish nonsense, the S&P500 has gained about 1% over the
last 5 weeks.
See figure 1, a weekly chart of the S&P500 with the indicator in the lower
panel.Inflationary pressures are extreme (as are the trends in crude
oil, gold and yields on the 10 year Treasury) and this is a headwind for equities.
I have discussed this indicator and a trading model that utilizes the indicator
at great length in 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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