On Friday, yields on the 10 year Treasury spiked higher by little over 3%. Our composite indicator that assesses the strength in the trends of gold, 10 year Treasury yields, and crude oil is back into the extreme zone. 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, it would have produced 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, there have four times the indicator has been in the extreme zone. These four trades resulted in 2 losses (-4.99%, -2.24%) and 2 wins (1.06%, 0.35%). The winning trades essentially were multi-week trading ranges for the S&P500. During the past 8 months when the indicator was extreme 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 there is either real or perceived inflation pressures (as measured by this indicator), I refer you to the following articles:

"More Headwinds To Worry About"

"Inflationary Pressures Are A Legitimate Concern"

"The Faber Model And Inflation Pressures"

One final note: during the week, I will review the technicals on the 10 year Treasury yields. By methodology, the trend in Treasury yields has not changed. It is still down, and my expectation is for higher bond prices.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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