Sunday, December 6, 2009

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:




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.

4 comments:

Dave Narby said...

I smell an intervention coming on...

IMO the only thing that can keep this from cratering is if the IB's and CB's kept back a an extra 100B to pump it.

Guy M. Lerner said...

Lots of cross currents....I can easily make a bullish and a bearish case; admittedly the bullish case would be predicated on nothing more than getting to the exits before the next person and that is hard to do; at junctures such as this, I try not to be all in or all out but will tend to take a more graded approach; I seek exposure to the market but I am more interested in playing defense

consys said...

Good work ... I've looked at various inventions of market positioning vs. inflation the decades( Steven Leeb used to try to figure it out in his books ), but none really grabbed me enough to utilize them.
I have run some analysis on what the actions of the Fed have on market stability though ... http://confluencesystem.blogspot.com/

Guy M. Lerner said...

thanks