Credit Flow Investor

Equation:

Risk Off +

FPC (Fed Policy Change) +

VIX 15+

-0.6%- Market Reaction (correlates with VIX 15+)

Unfortunately, Risk off hasn’t occurred in January.  While Gas Buddy has come off, normally you need a build up of risk off / oil down for a month or so (FXC has also been RSI 50+ for most of Jan). Unlikely now that Feb will be a run down on SPY.

Good news is that the Fed wants to raise rates 3 times this year. While Trump and the new President ‘spoiled’ the potential Jan or Feb run down, the new President effect will be over now for 4 years. Also Trump has driven the risk on/off chart downwards giving lots of opportunity to the upside later in the year and next year. Risk off will cross in the next month or so and build up (need some upward momentum in Risk off chart) to the June Fed Meeting when the Fed will most likely raise rates again.

Then there’ll be a run down in July.

A Sep FPC will also result in a run down in October.

And a Dec FPC will result in a Jan 2018 run down.

FPC occurred in Dec so a Jan drop was expected. The idea of a ‘delayed’ SPY drop due to the new President may still have a play. While the charts are saying ‘no’, Yellin did come out to speak right after CPI Jan 16 (context is rising GCPI and too hot stock market) so it is still possible the Fed uses unusually strong language in the Feb 1 meeting diverting the market. But only 5% chance as VIX is only 10 and 15+ is required!

Lowest VIX in 5 years:

And Risk On/Off shows very close due to X next week:

and risk on/off stocks:

AND the FED doesn’t like this at all (Change in Gas Prices Yr/Yr):

Highest change in 5 years!

Gross cpi has surged in a big way from 1.7 to 2.1…hence the ‘3 fed rate rises’ stance this year.  This takes TLT off the table for any short term runs. BUT good news for recession next year.  You need inflation in order to have a recession and also fed rate rises.

Core inflation also back up to 2.2…

Also good news will be volatile markets and opportunities to play SPY short. See 2007 as a guide, 3 dips: Feb, Jul, Oct, and Jan 2008 (4th).

The best time to buy TLT is when fed rates are falling (rates need’nt be 0 but decreasing) and  after a spy crash:

First happens SPY crash:

Then fed drops rates:

Then TLT pops after the crash Nov 1-Dec Fed Mtg:

The lead up to the 2008 GFC was after rates rose following very low interest rates:

Today debt levels are higher so rates need not go as high as 5% but the trend is the important issue. With rates rising 3 times this year, recession is coming up in 2018.

This is great news!  As predicted Risk Off arriving fast from a low level!  Looks like inflation is coming off as well. Things change fast these days…hence the need for “react” and not too much prediction (which is for fun only).

(Risk off + FPC)…The reaction to FPC has been shifted due to the new president but resumes at the next fed meeting Feb 1!

I suspect the capital influx surge into US that you can see above started last Feb 2016 is now ending.

Risk off oil is 2.6/3 weeks away based on slope -0.05625 per week.

Risk off stocks is 2 weeks away.

When Risk off is triggered and Fed Meeting Feb 1 happens, SPY short is on with SPY HA red or RHA. The fed will signal more rate rises as inflation is a problem and SPY has run too far too fast. The Jan correction has been put off to Feb. The new name for the system is VOTS:

V is for vix

O is for oil

T is for TLT

S is for SPY

Vg,Or,Tg,Sr means VIX HA green, Oil HA red, TLT HA green, and SPY HA red.

The two risk off springs: TLT:SPY and TLT:$WTIC have been rewound (both show risk-on for now).  They are ready for rebound so this is good news for September and 2018. The risk-off charts usually X in July-Aug. They need to X 1-2 months before the risk off SPY short play.

Inflation is also back. The YoY gas price change (monthly dots) shows rising inflatio.  Hence, the Fed is hinting at more rate rises this year.

The longer view shows a similar chart in 2007! This implies more rate rises this year.

SPY was quite volatile in 2007 (3 dips). There were 2 big dips:

beginning Jul-end of Jul and

beg Oct-end of Oct.

SPY short or TLT strategies aren’t possible until risk off.

Basically…risk on since July and with oil since August!

But now ROC is +ve.  So likely to change to the upside in 1-2 months. In order to play Sep-Oct SPY short, risk off is necessary.

See 2014 for example…

In July, Oil started to fall and risk off started.  So the SPY short strategy worked great Sep 25-Oct 15 (3rd wed).

Gas buddy must turn before SPY short again. Gas buddy and trump optimism overrode the FPC. But this happens rarely.

longer term chart….2014 (taper),2015 (0), 2016 (rise), 2017 (rise)

Oil and Trump kept the correction away for Jan.

Next FPC (Fed policy change) is likely in September.  The trump effect will have waned by then and gas buddy/oil should be with us. So I say next play is Sep 25-Oct 18 after FPC Sep. 21.  Should see Sep 22 SPY RHA and gas buddy declining.

A similar chart to Sep 2014 goes red the Mon after fed meeting until Wed of 3rd week close.

The next near-term dump with it X risk off:

Due to magnitude of TLT response, I believe now that 2017 will be closer to 2008 and TLT will not be a play until after October. Recession may be pushed until 2018 also BUT Q4 2017 probable. In Jan, TLT will be a dead cat bounce due to bonds falling precipitously the last 2 months, and a fed rate rise in Dec…it may still run in 1st week Jan BUT lacklustre performance after that.

Good news is a major SPY crash happens 2017. So a 2nd SPY short starting in Apr/May ending October will also be very good and it will be great coupled with TLT Nov-Dec and QE starting Jan 2018.

Note even in Jan-Feb 2016, TLT rises rapidly 1st 2 weeks of Feb AFTER the crash/fall in SPY.  So TLT rose fastest in the month after the crash/fall in 2016.

BUT 2008, it rolled over in Feb so again wait for major crash in Oct and buy Nov-sell Dec.