Credit Flow Investor

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.

VIX fell on Friday and gas buddy keeps rising.

TLT will be a play after jun 18 and vix ha > 15

vix low and falling…don’t buy tlt…wait for jun 17

Yellin announced stocks are too high.  So there’ll be downward pressure on SPY until October-style correction (could be Sep also).

I believe the TLT bottom is in, BUT I want to buy Jun 18 (morning of CPI day) as it will fall on that day due to gas buddy surge this month (inflation will rise for May but that will be the peak).  Most likely TLT will be about the same price as now, BUT we’ll be able to see Gas Buddy falling on the downside to increase confidence.

In the near term TLT may rise $1-$3 before going sideways until cpi day. It will go sideways due to SPY rising a few dollars until Fed Mtg Jun 17.  After Jun Fed Mtg on Friday/Monday, SPY will turn and start a downward journey until October.

Good news is world economy weak but inflation will rise with USD falling.  So overall good news to buy TLT cheap before the next run/rebound.  With world economy weak, the rising oil will last a short time perhaps end of May and then roll over again when world economy exerts influence on it. So a continued yo-yo SPY and TLT will occur.  QE cannot be engaged until inflation falls below 1.0

As you can see above, ccpi has been stuck between 1.5 and 1.9 the past 2 years. QE was engaged in 2010 ccpi fell below 1.0.  So inflation would most likely have to fall quite a bit before QE would be engaged.

For now, USD falls due to weak economy and therefore no interest rate rise. This will push up inflation in near term to 1.9 range and then stall out again. At that time, TLT will be a play when GB falls and VIX HA > 15 after a Fed meeting.

New idea is that ccpi may fall to 1.0 next year about April 2016 and QE is engaged then. For now, a market crash of 15% seems unlikely.  So to engage QE it may not be necessary for the market to correct 15% but rather inflation falls below 1.0 next year sometime.

3 EVENTS OUT OF 8 FED MEETINGS (3/8)

There are 3 VIX 20+ events per year so there’s always more opportunity ahead. Notice each event is right after Fed meeting or within 1-2 weeks after.

Since QE ended, Oct/Nov, Dec (1 week run after Fed mtg), and Jan/Feb were periods of good TLT runs followed by good SPY runs.  The next run may be August although June is possible.

Core inflation rises a bit.  Last year peak was May (reported June).

So inflation cycle may end  at end of May with a turn in gas buddy afterwards…

After the Feb rise, hints of interest rate increases leaked out meaning the Fed wanted to limit the market rise.  This may occur end of May /early June as well.

VIX down .. no TLT …SPY will run higher but a few dollars at best.

Best opportunity for TLT is after gas buddy peaks and the next Fed meeting (Jun 17).

Today gas buddy is flat but will need a few more days to confirm a peak.

Gas buddy peaked in august and fell.  TLT had good runs in September/October and December/January as a result. Also TLT flat when gas buddy was flat from late march to middle april. And TLT fell a lot from Apr 15-onwards as gas buddy rose.

Before entertaining next TLT run, gas buddy must peak and fall.  So the next TLT play may be after June meeting depending on gas buddy peaking next 2 weeks.

Buy indicators..for TLT in non-QE environment

1) Gas Buddy peaked and falling

2) After Fed Meeting

3) VIX rising, VIX HA > 15

4) TLT dumped before

5) TLT GHA and SPY RHA

Problem with April was vix sideways and falling. April 2 red HA indicated to get out of TLT. At the open it was a small green and preceded to fall from there. One way to avoid this is to wait for the dump/fall of TLT first.

TLT was also sideways from Mar 18 to beginning of April.  It’s always best to wait for Fed meeting and dump before buying.

April 2 vix opened higher but then fell below 15….

The TLT dump has now occurred.  Vix rising may take until end of May or early June.

Buy indicators..for TLT in non-QE environment

1) Gas Buddy peaked and falling

2) After Fed Meeting

3) VIX low and rising, VIX HA > 15

4) TLT dumped before

5) TLT GHA and SPY RHA

Economic reports are irrelevant…..

Good news is VIX stays low for a limited period…1.5 months before another VIX burst