Credit Flow Investor

OR bi-wkly change..

Gas more flat in May +2% vs +12% in April

CPI ‘surges’ though…it’s not a straight line.

But YoY still high by end of year at 3.2…

And 2026 marks rising CPI…and more next year and even more 2028!

This means weakening economy.

Based on cpi being 3.1 by Dec…

As you can see …economy was benefiting from falling inflation from 2023-2025.

SPY has been useful with Q4 +2.7% and Q1 -6.2% showing a slowing momentum (slowest in 3 years)

which leads to CPI surges and recession.

However, bonds and CPI surges are the trackers now.

You can never win with technicals alone. You have to ‘marry’ technicals and fundamentals.

Fundamentals are not what you read on the internet or newsletters. They include weak economy, CPI surges, and earnings seasons. Or others like Fed on a rampage in 2022 raising rates. Other fundamentals such as CPI (as opposed to CPI surges), GDP, etc. are useless for making money.

Steps for a run (in this cycle)-

1. CPI surge Fundamental
2. Bonds uptrend for 2 months Technical
3. Earnings Season Fundamental

‘Reversals’ occur in earnings seasons.

Modified from yesterday when SPY hiccups this year:

1. Jul-Aug
2. Oct-Nov (this means no Fed drop in September or October!)

Only 1 drop in Dec. this year in order to bring CPI < 3.0.

CPI will hit 3.7 YoY in April.

And of course, the only way to have CPI < 3.0 is no drop in Sep.

Many years have 2 runs or 2 hiccups! (to try to bring inflation under control)

Hiccups when Oil and SPY drops:

1. May-Jun
2. Sep-Oct (this means no drop in September!)

After each hiccup, SPY and Oil rebound but the economy is left weakened.

Now that gasoline is in ‘play’…the pre-recession has arrived and WS plays both gasoline and OIL as well as SPY.

‘Reversals’ are now possible especially with gasoline +10% in 1 week.

BUT SPY upside is now limited.

AND S and P momentum dying weekly 0.9%….2.57 SD on 4wk monthly SPY

Scenario 1-

SPY 0.5 SD at end of May or +2% followed by reversal in June.

TLT moves up the last 2 weeks of May.

Scenario 2-

SPY -1 SD at end of May -4%

No increase in rigs or oil demand …still 25% slack in the system.

the last 3 weeks…

Based on the last 3 weeks (12wks at +2.1%) and continuing on current curve..

I have seen this all before. The FED and gov’t have been benefiting from WS for years ..the ‘virtuous’ cycle. Oil and gas have remained low and everyone has been benefiting.

Quick summary:

1. SPY loses momentum (YoY)
2. Oil and Gas become speculations (the first signal of pre-recession)
3. Economy weakens
4. Bonds start to move (primary tracker)

BEFORE a recession, Oil and SPY become speculations that cease to ‘help’ the economy. SPY has a hiccup and then retraces plus 1%. SPY becomes a ‘pump and dump’ operation. That’s why the recession is not seen as every hiccup is followed by it going higher. BUT it is also true that SPY starts losing momentum before a recession; for example YoY starts to slow considerably which also signals the oil and gas market.

So when the recession arrives, very few are prepared and poo poo it. However, the bond market is more sane and starts to move up reflecting the real economy and coming recession.

SPY and Oil go through ‘surges’ so they lose their ‘steadiness’ while bonds become more smooth and steady. That’s why you can see all going up at the same time but there is only one true winner. In the mini-cycles before the big crunch, SPY and Oil crack in a deflationary phase and TLT pushes up quickly.

The economic ‘system’ works but after each recession it rebounds slower and slower.