Credit Flow Investor

Core inflation highest in 3 years!  and more inflation to come with obamacare.  Gas prices have also risen so ccpi at 2.0 is very possible on Jun 17 and interest rate rise announcement also possible. Taper 2013 had 3 phases: announcement 1, announcement 2, and implementation.

see 2013:

taper announcement 1 Jun 2013          VIX 20+ 1 week after Fed meeting

taper announcement 2 Dec 2013           VIX 17 just before Fed meeting

and implemented Jan 2014                    (despite economic weakness)  VIX 20+ early Feb

http://www.cnbc.com/id/101279385

see also 2014:

Oct 2014 interest rate rise in fed minutes  VIX 20+

Dec 2014 End of QE                                        VIX 20+

Jan 2014 Month after QE ends and ECB implements QE    VIX 20+

Rate Rise 2015 announcement 1 possible Jun 17 due to:

1) ccpi near/at 2.0

2) need 6 months notice for actual rise   (announcement 1)

3) Yellen mentioned stocks overvalued at beginning of April

Monthly core inflation below…

ROC + Sep

ROC – Oct

ROC+ Nov

ROC -shallow Dec&Jan due to end of QE and ECB QE

ROC+ Feb

ROC- Mar

ROC+ Apr & May

June should have ROC- as its overdue.  Last year May, Jun, and July were ROC + so a 3 month + run is possible, but it was followed by ROC- in Aug and large ROC- in October. So June can be + but then July would be –

Gas Buddy Rising slower now

As money velocity keeps falling, the Fed has to drive asset prices higher and higher in order to grow economy.

The peak of money velocity was 1997 and since then asset bubbles have been driven higher and higher with no sign of stopping. The 1990s had a significant rise in money velocity. This is all tricklism…since 1997.

http://stockcharts.com/h-sc/ui?s=%24USD&p=D&yr=1&mn=0&dy=0&id=p65443933360

This is a TLT ‘in play’ indicator. VIX > 15 still necessary

but good news inflation has also surged..

So with inflation near the top target and stocks overvalued…Fed can announce interest rate rise in June.  USD seems to be factoring this in the last week….SPY will be slower to realize…

The first dot above the line since Apr 18.  Possible TLT turnaround…

Gas Buddy still rising though…

And vix still low

Also TLT: $WTIC adjusting…also levelled.

Not always but as with Fed meetings a change in trend is possible or the stopping of a trend (Feb 20) occurs after the Fed minutes.  3/8 Fed Minutes per year are significant. So as with May 2013, a possible change in VIX trend could occur due to Fed Policy change after Fed Minutes May 20.

If 2 days after the Fed minutes SPY turns red, then VIX will most likely rise from there.  If SPY is green then chances are VIX remains low or falls then the next opportunity would be Jun 17 Fed Meeting.

The Minutes below are on Feb 19 and Apr 8. See Feb 20 where SPY peaked out and Apr 9 where there was no significant event and the trend continued. In the case of May 2013 in the previous post, May 22 or the day after minutes SPY turned red.

Consider TLT entry when

1) After Fed minutes May 20,

2) VIX HA > 15   (closes at 16 for example)

3) SPY is $2 below recent high or $210.  SPY should also be RHA.

Current VIX 12dma…

First sign would be VIX HA to show above 15

and SPY would have to turn red…

In June 2013, the Fed announced the taper policy to let the market adjust and then implemented it in December 2013.

I believe now they are also going to announce the policy of an interest rate rise and then implement it in Sep/Oct/Dec.

Going back to Jun 2013….May 1 was the Fed meeting and Fed minutes were May 22. Notice how VIX began to rise on May 22-23. On May 31, VIX HA crossed 15. Even though VIX was red on some days, it was consistently above 15.  This will be the entry criteria now for TLT.

VIX was RHA and SPY was GHA on June 26 morning for a rebound play.

VIX X 12dma on May 20..Fed minutes May 22

SPY started down on May 23 the day after Fed minutes and fell 5.6% from Fed minutes to 3 days after Fed meeting.

On June 19 the Fed met. SPY rebounded higher 4 days after Fed meeting because QE was still on and of course the policy hadn’t actually started yet.  In this environment, I believe SPY will rebound to the same level.

Notice June 26 morning is at 154.50  (+2.50 off of low 152):

1) SPY GHA +2.50 off bottom

2) VIX X 12dma and VIX RHA

For entry TLT consider May 31 at open when VIX HA > 15 and SPY was $2 below the recent high.

Bi-weekly gas St Louis FED shows record surge levels

Gas Buddy 11% rise in 1 month…inflation surging…Since beginning of May rise at 8% rate.

MONTHLY rate of change below for gas drives inflation higher

Why is inflation rising good? The Fed is sensitive to rapid inflation rises and signals in the following meeting to the markets that a pullback in liquidity is on the table.  The markets fall in the meeting after a surge occurs. In addition, yellin has made noises about an overvalued stock market so an interest rate rise is also on the table in the next meeting.

The plan is to buy TLT after an initial shock when it turns GHA…

10+% surges in above chart

March 2011… SPY fell in April 2011 and TLT rallied

March 2012…SPY fell/TLT rallied in May 2012

August 2012…September/October rally in TLT

Feb 2013…TLT rally in April after March Fed meeting!

March 2015…Gas Buddy was very low and had to recover quite a bit…hence the fall in bond prices..starting mid-April. BUT the gas rally will end in 1-3 months and roll over (so far 2 months of rally). At that time bonds will be very cheap…June 18 is a strong possibility.