Credit Flow Investor

Inflation rose again …

So rate rise next week and TLT may go up $2 next week but performance flat as rate rise will dampen the effect.

Rate rise enviornment until ccpi < 2.0:

TLT rise/sideways … lackluster

SPY down

Oil down

BUT

monthly ccpi coming down although Jan -Mar usually has higher ccpi numbers so ccpi could stay above 2.0 until July.

So new plan is to buy back TLT when ccpi < 2.0 and selling 8-12d after the election. TLT is undervalued relative to oil and SPY due to rate rise environment. When ccpi < 2.0, fed will stop rate rises and TLT will initially rise slowly AND then burst forth in Aug-Nov period.

Now reviewing ccpi, TLT and SPY in 2008….note how TLT began to move in Sep when ccpi began to fall again (once below 2.0, very fast). This year ccpi is starting lower at 2.1 instead of 2.5. So the move in TLT should also start sooner. Jul-Dec seems to be the best period (due to election) BUT ccpi falling below 2.0 may advance the July start.

The TLT:SPY ratio has surged to a new recent high which was expected.

So sell all TLT on Friday at close.

The end of month is the best time to sell TLT when there’s a good run ($10). The end of month effect is even more pronounced on a TLT good run than a SPY good run.

Even SPY pulls back very little at end of month if it’s strongly up for the month (and on the Fed day see Jan 2013). For this month, the end of month effect will also drive oil to its lowest point and SPY as well. I expect a moderate to strong rebound in Oil and SPY starting Feb 1.

For TLT examples, see May 2012, Apr 2013, Jan 2014, and Jan 2015. Even Sep 2014-Oct 2014 had a good run for TLT and it lasted 4 weeks ending on the Friday.

AND

in 2008, liquidity crunch in Aug and Sep led to higher and higher TLT levels with some big reds along the way..

TLT:SPY ratio looks on track and the ROC for it should hit 10% before some peak is reached so we’re early yet!

TLT volumes are still low as most are still on vacation.  SPY is falling as expected and will continue to fall through January. Oil will resume its fall and TLT will start to rise again at that time.

Any month where SPY dumps 8-10%, oil ends up lower as well. The end of the month will be the low for SPY and Oil and the high for TLT.  Oil and SPY may change trends for a week or two but the last week of the month will have SPY and Oil going lower.

TLT to SPY ratio shows uptrend/bull…

Starting the week of Jan 11 holidays will be over and volumes will pick up.  TLT prices will pick up at the same time. Plan is still to sell TLT on Jan 29 at close.

Expect a $10 run to Jan 29 at close. The two main points are the January effect and the Fed Policy Change in Dec.

Could be building momentum slowly as was the case Jan 2014 accelerating in 2nd week…

Monthly gas shows negative indicating TLT gas / oil part is a go.

Most important is the FPC or fed policy change. Fed policy change the best time to profit.

One chart for showing change in fed policy is the ZROZ:TLT chart which is  now being introduced. From 2017+, this chart will be used for SPY/TLT long position changes.

We’re on hold due to Christmas Rally. But it appears over now. If VIX GHA on Monday and SPY RHA, TLT will be a buy. TLT was slight red on Friday.

So Mon Dec 28 uptrend resumes on TLT. Christmas rally on low volume is suppressing TLT until Monday after the holidays. Dec 28-31 week will show strength and first week January will be very strong.

Mon morning will show:

VIX GHA (see first green below Dec 29 2014…this year will be Dec 28 2015)

TLT GHA

SPY RHA

TLT Dec 2014 had volatility around Christmas due to (SPY) Christmas rally on low volume:

Vix is falling and low volumes show a small Christmas Rally occurring.  This is good news for buying TLT on Dec 28.  It’s possible to get it a little cheaper on Monday.

Let the volatility of the Christmas holiday work its way out first.

TLT will go green now (GHA) all the way until Jan 20 when ccpi is announced.  If ccpi < 2.0, then it will continue, otherwise it may go sideways after that. So the good news is the sideways motion of TLT since August will end.  The strongest ‘up’ will be the first 2 weeks of January.

The reference chart for this period is the Mar-Apr 2013 period when ccpi was 2.0:

As ccpi is 2.0, I realize now the Christmas rally will not happen this year. SPY will come under pressure now and resume the bear market (below 200dma). The high inflation environment leads to more Fed rises hence the downward pressure on SPY.

Core inflation hits 2.0 hence the rate rise. FPC means fed policy change.  These are the best times to profit.   Dec 2012, Dec 2013, Dec 2014 & Dec 2015 are all FPC events leading to great Jan profit opportunities:

Dec 2012 QE leads to SPY in Jan 2013,

Dec 2013 Taper leads to TLT in Jan 2014,

Dec 2014 (no rate rise) leads to TLT in Jan 2015 and now

Dec 2015 (rate rise) leads to TLT in Jan 2016.

Jan 2016 is the best time to see C-E or commitment to execution.  SPY is now rallying which will cause TLT to come off.  Low volumes will continue through the holiday period until institutions create their yearly policy in Jan.  So Jan 4 is the day until Jan 27 the sell day…