Credit Flow Investor

Crises evolve over 1 month as from Sep 18 to Oct 16 this year. In 2011 when QE was turned off in June, the crisis started the following month in mid-July and the crisis peak was also 1 month (mid-Aug). The best returns are during crises.

Given that Feb 2015 would be the crisis month, a 1 month back-off would entail the crisis starting mid-Jan.  So the first time to watch for VIX GHA will be on/after PMI day, Jan 1 2015.

When VIX HA turns green and TLT GHA/SPY RHA is observed, buy TLT at the open.  SPY should also be RHA (red Heikin-Ashi daily) at that point. When QE is ending, TLT and SPY are inverse to each other at transition points. TLT should only be bought when QE is ending or ccpi is 2.0. When QE is turned on, inflation could become a problem and therfore TLT is not recommended. VIX is the primary indicator for storms/crises and transitions.

Remember that Heikin-Ashi represents the average-pace of prices. The resulting candlestick filters out some noise in an effort to better capture the trend. In Japanese, Heikin means “average” and “ashi” means “pace” (EUDict.com). I have also added the 12dma to my charts to filter out additional noise. I am using HA (heikin-ashi daily) with VIX, TLT, and SPY to identify the dominant trend.  All 3 need to agree:

Uptrend SPY – VIX RHA, TLT RHA, SPY GHA

Uptrend TLT – VIX GHA, TLT GHA, SPY RHA  (QE ending or ccpi 2.0)

If not, it’s noisy and not worth pursuing. Stay cash in this case.

If a turn occurs after a trend starts (GHA turning to RHA at the open), watch for -0.5% or more of a move before selling. A ‘thin’ RHA at the open can be ignored. In general, a RHA at the open (on an uptrend) means sell.

October 2013 had a crisis last year and another occurred this year. February 2014 had a VIX 21 crisis and I expect again in 2015.  However, October this year was a bigger crisis a VIX 26 vs 21.  With QE ending, the Feb 2015 crisis should also be bigger.

In Sep 2014 after the Fed meeting (Sep 17), VIX GHA, SPY RHA and TLT GHA occurred on Sep 22. This led to the building crisis in October.

After Fed Meeting Dec 17, watch for the same VIX GHA, SPY RHA, and TLT GHA.  Another TLT run is possible from (Dec 22/mid Jan)-mid Feb.

The spring swoon occurs every year due to overselling at Christmas leaving no demand for Q1! This will create a VIX 21+ crisis in Feb and another SPY rebound opportunity mid-Feb to March Fed Meeting (Mar 18 2015).

The lowest gas buddy in 4 years indicates a big crisis ahead (a weak economy) and it continues to fall! The last time gas buddy was this low and falling was 2008! (2008 had a much higher inflation rate so of course the crisis will not be as big)

Based on October, we know the Fed doesn’t mind a -7% correction. The usual Fed ‘pain threshold’ is -15% correction. So this is possible in Feb 2015. It is usually over in just 2 weeks.

November will be sideways on SPY with the first day of month down due to profit taking.

In Dec, QE will be shutoff but no crisis as SPY can get OB in Dec. There’s no taper or fiscal cliff to worry about.

Every big crisis occurs after QE ends: Jun 2010, Jun 2011. In 2012 we had a small crisis. Fiscal cliff was headed off by Bernanke with QE starting in Sep 2012.

In Jan/Feb, the big crisis VIX 21+ will hit in 1st 2 weeks of Feb. The economy will be bad coupled with QE off. The pain threshold of the Fed is usually a 15% correction or about 170 on SPY before QE is announced again. This will be the next big rebound to play.

Some new terms:

SPYgha – SPY GHA daily

VIXgha – VIX GHA daily

TLTgha – TLT GHA daily

The play will be TLT in Jan when VIX/TLT indicates a turn. Followed by a crisis in Feb and selling TLT/buying SPY on SPYgha. Sell TLT and buy SPY on the same day.

Reviewing 2014..VIX shows a turn on Jan 16.  QE taper starts here.

And TLT showed turn earlier..

But pattern is more clear nearing the end of QE Sep/Oct. VIX starts Sep 22 after Fed meeting.

And TLT about same time..Sep 19.

The idea is VIX turns up in mid-Jan and momentum builds through a crisis when FEB pmi falls short.

Sell SPY now.

Look to buy TLT if VIX turns GHA! I will look again for VIX HA at 1100 EDT.

TLT is now GHA!!!

Sell SPY OCT 31 at close due to gas buddy continuing to fall.  Gas buddy will have to stabilize and start to rise otherwise a VIX 21 crisis could occur as early as December.

Even Oct 22 (Wed) had a fat green bar $2!

Due to rising volatility 12dma is changed to 4dma until QE starts again in Jan/Feb.

1) GHA exists

2) OEX at 47 has X the 4dma

3) VIX dropped <4dma  at open

OEX has to turn and is below the 4dma.  Thurs would have to be above the line and then Friday morning would be go. Again if GHA occurs and VIX close to 12dma 19 or so.

The go signal will be

1) OEX X above the 4dma the day before….

http://stockcharts.com/h-sc/ui?s=$OEXA200R&p=D&yr=0&mn=6&dy=0&id=p86984470914

2) VIX close to 12dma or 18.9 today

3) GHA bar (daily) at open

4) Sell on 1st RHA at open or the friday on the second week

OEX 4dma should show a dot above the line. On the next day, it should be GHA at open.

http://stockcharts.com/h-sc/ui?s=$OEXA200R&p=D&yr=0&mn=6&dy=0&id=p86984470914

See in Feb, it X the line on Feb 5.

Feb 6 at open was the first GHA!

Same as last October…

October 9 the dot X. October 10 was the first GHA!

The last 2 days gas buddy has leveled off. This is a bottom area and the rise you see in Dec 2012 is the initiation of QE.

So if QE starts in December, gas buddy could rise through Dec/Jan rapidly leading to a possible ccpi of 2.0 in Feb.  In that case, the Mar/Apr transition would be a good TLT/SPY turnaround play.

Currently waiting for the first GHA bar and VIX to fall to 18 area.  Most likely Thursday starts GHA. For now ccpi < 2.0, so SPY rebounds are the play.

In Feb., VIX rose from 12 to 21 or 9 points.  SPY run was from 174 to 183.5 or $9.  In the 3rd week it went to $184.50 or $1 more.

See table of VIX ranges and SPY 2 wk runs. So VIX run approx. = SPY run from bottom to top.