The last time I looked at gold was on January 2, 2009. Gold had closed above its "simple 10 month moving average and above a down sloping trend line formed by two prior pivot high points."

I went on to state:

In a previous post on long term Treasury bonds, I reviewed some of the technical factors that have me bearish.

So it is highly likely, from this perspective, that Treasury bonds will be an under performing asset class over the next 12 months. But more importantly, will this market top lead to an investing opportunity (i.e., by shorting Treasury bonds)? In other words, will the market top lead to a secular trend change in Treasury bonds?

Last week was a very draining and emotional week. If you invest in stock indices, you were reminded prudence doesn’t pay. In an increasing risky environment, the stock market was buoyed by Fed interventions. On the other hand, if you invest in commodities or commodity ETFs, you were reminded that investing in financial assets can be a risky business. Gold had its worst one day drop in over 28 years in what seemingly was a news vacuum.

Prudence: A Four Letter Word

To assess inflation, you don’t have to rely upon flawed government numbers, like CPI or PPI. All you need to do is look to the markets and see that oil, copper, platinum, wheat, and gold are breaking to new highs almost every day. Inflation is ever present, and despite the recent bounce in equity prices, at some point these inflationary pressures are likely to take a bite out of equity prices.

I avoid the government inflation noise and create my own inflation indicator from the price trends in crude oil, gold, and yields on the 10 year Treasury bond. I let the markets tell the story. With gold and crude oil surging this past week and with yields starting to move higher, inflation pressures are mounting, and typically, this a strong headwind for higher equity prices.

I believe this is one market extreme that might work, although I only have data going back to 1986. The figure below is a weekly chart of the S&P 500; the indicator in the lower panel looks at the number of NYSE issues trading above their 40 week moving average.