The Folly Of Investing Today...

http://stockmarketchartanalyst.blogspot.com/

by Karl Denninger - Posted 2010-09-21 20:45

Investing is all about trying to determine a longer-term direction for the market such that risk and reward align in some meaningful way.

Yesterday, on Blogtalk, I stated that I was pulling all of my long-term investments that were market-related, and for an indeterminate time forward I would be only short-term trading this market.

That deserves an explanation, and toward this end, I would like to present the following 10 year weekly chart.



The regular "trace" is the S&P 500 price. The white trace is the 10 year Treasury yield as a comparative.

You need to pay attention to this.

"This time it's different" is often said.

It is almost always wrong, and believing in it will almost always make you broke.

Here's reality folks. Over the previous 10 years the TNX has never declined meaningfully without the S&P 500 following it, and declining to near or below it on a comparative basis.

The TNX almost always leads on declines too, sometimes by as much as six months.

Well, it's been six months.

In 2007, the TNX peaked in late June, after which it began a dive. The market peaked in the middle of October of that year at 1576. The decline essentially reached the comparative bottom.

Now the TNX has peaked the first week of April of this year, and is quite close to the March 2009 lows. Yet the S&P, after it took a swoon, has recovered.

Exactly as it did in 2007.

We all know what came next.

The same thing happened in 2000, when the market peaked and fell apart. Again, the TNX led. It in fact peaked almost exactly at the end of the year in 1999. Three months later "it" began.

Continued at: http://market-ticker.org/akcs-www?post=167162