Inflationary Pressures Heating Up

Although the Federal Reserve would like us to believe that inflation remains low, the markets say otherwise.  As of Friday, our composite indicator that looks at the trends in gold, crude oil and yields on the 10 year Treasury is at an extreme value.  See figure 1 a weekly chart of the S&P500.  

Figure 1. S&P500/ weekly

Inflationary pressures are rising (as are the trends in crude oil, gold and yields on the 10 year Treasury) and this is a headwind for equities.  A strategy that combines this "fundamental" filter with the 40 week moving average has given a sell signal.  This strategy easily beats buy and hold and a simple moving average model in terms of points gained and drawdown.  I have discussed this model at great length in the following articles:

Developing A Trading Strategy (Part 1)

Developing A Trading Strategy (Part 2) 

Developing A Trading Strategy (Part 3)