Trends In Gold, 10 Year Treasury Yields, And Crude Oil

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 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.