As this headline from the Wall
Street Journal shows, inflation pressures are just beginning to be
recognized by investors.
Figure 1. Headline WSJ
My composite indicator, which is constructed from the trends in crude oil,
gold, and yields on the 10 year Treasury and which is a gauge of inflationary
pressures, has been at extreme levels for the past 12 weeks. The indicator
is shown in figure 2, a weekly chart of the SP500. When the indicator is at
such extremes, this is a headwind for equities. However, for the past 3 months
while the indicator was at an extreme level, the SP500 rose about 5%. This
is not the average expected outcome but certainly within the realm of possible
outcomes when the indicator is at an extreme level.
Figure 2. $INX/ weekly
In any case, the indicator is no longer extreme as gold and crude oil have come
down in price over the past couple of weeks. So what was a
concern of mine several months ago is the "market's" concern this
week. The fact that inflationary pressures are subsiding is a positive for
the equity markets especially once the overbought conditions are cleared.
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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