After SPY is overbought, the next month has a pullback and the VIX rising to 20. The base VIX has moved to 10 so the range may have moved from 12-20 to 10-18.
If ccpi hits 2.0, TLT is the play Jul 22- early Aug and then play SPY rebound in Aug.
It looks like the large TLT play could be Nov-Dec this year after QE is shutoff AND ccpi 2.0. It seems the condition for a large TLT run is when QE is turned off and ccpi 2.0. This occurred Apr-Aug 2010 (QE shutoff Feb) and July-Sep 2011 (QE shutoff Jun).
The market corrects 1-2 months after the QE is shutoff. The QE will be turned back on after the 15% correction occurs November-December.
Each year has seen 2 inflation surges Feb 2012, Sep/Oct 2012, Feb 2013/July 2013, May 2014 and Oct/Nov 2014? So it may be that inflation does surge to 2.0 in October and November would be a buy for TLT. However, the correction could be as late as March and must be allowed for.
June meeting: Mortgage 15, Treasuries 20
July meeting M 10 T 15
Sep meeting M 5 T 10
Oct meeting M 0 T 5
Dec meeting M 0 T 0
If a T 0 condition is necessary, Feb-Mar would be the time frame for the correction.
A short-term 1 month play may still occur next month if ccpi is 2.0 and TLT shows a GHA event as March 15&18, 2013 showed.
See above HA for TLT after cpi announcement on Fri., March 15 and below OHLC bars for the same period.
Above is the TLT:SPY ratio for July 2011. Notice the large uptick at the end of the month. Similar to now the ratio had been low for quite some time.
This time it will be closer to the Mar 2013 event with TLT clearly rising after ccpi was reported 2.0. However, below the core inflation may be short lived resulting in a fall back in inflation below 2.0 shortly.
http://www.calculatedriskblog.com/2014/06/merrill-lynch-inflation-bump-up-or-bust.html
There is a suggestion though that inflation surge has been due to medical drug pricing and will come off soon. If this is true, back to SPY rebound plays.
CCPI is very close at 1.95. Need 2.0/1.99 for Fed to act.
Watch for
1) rising VIX
2) TLT:SPY ratio X 40 wkma
If the above two happen after the cpi is announced next month, July 22, then TLT will be a buy. TLT should rise and have a GHA on the day the cpi is announced. Gas buddy should also stay elevated next month as well.
The VIX is in an uptrend…it went below 13 for 6 weeks this time….
M2 Money Velocity (Quarterly & 5 Year Change) shows declining effects of Fed stimulus
See M2 money velocity at 50 year low…
But rate of change also low..and ‘recovery’ was the shortest ever
VIX is rising now BUT it must hit 17 in order to play rebound
http://www.cnbc.com/id/101749088
The implication is that another crisis is around the corner…
I looked closer at the behavior of SPY when the VIX was as low as now (Mar 2013). In this period, ccpi was 2.0 but still a low VIX would indicate a low rebound opportunity as sure enough looking at the charts HA and bar charts….
So looks like gas buddy has to fall for a while first and VIX 12dma needs to normalize around 12-13 before another rebound opportunity…most likely early August. Still have to wait for VIX 17-20.
VIX will go higher though as I predicted gas buddy falling quickly now! Next run should be good as VIX should hit 20+ in August. Remember for a good run gas buddy must fall for 1.5-2 months.
But good news for August as a new strategy works well:
1) VIX 20+ then
2) Buy First GHA at the open OR close(check twice per day at open and close)
As long as GHA from 9.35 in the morning you can also buy then for a better return.
See Feb 2014 below. The buy point would be the open on Feb 6 (174.75) as opposed to open on Feb 7.
Hourly HA Feb chart shows green from the first hour on Feb 6:
Also works for October 2013:
So after VIX 20+, buy at open on 1st GHA for best price…
Looks like gas buddy peak was end of May. As gas buddy is falling fast now, looks like the next rebound opportunity will be July 30-early August after Fed meeting. Major run ppportunity will be August. ECB event has been factored into market now.
From chart below SPY rebound opportunity occurs after gas buddy falls for 1.5-2 months. The August buy opportunity was not indicated but did occur so the 1.5 month lag happened there as well.
So VIX rises above 20 and the buy will occur on the first $0.50 GHA daily (VIX/GHA method).
A 17 minor VIX opportunity may occur June 16/17.
The 17 VIX would occur on June 13 followed by GHA on June 16/17 and the sell date Jun 20 at close. On March 13, the VIX was 17 , SPY 183.75 and rose the following Friday to 187.75 at the close, a $4 run.
Looks like SPY rebound strategy will continue as even a strong May and Jun (unlikely) still leads to a ccpi less than 2.0. Gas buddy will fall away this month it looks like and gcpi will finish below 2.0 Jun 17.
Compare mo. CCPI in 2013 and 2014 and a projected strong May and Jun:
2013 YoY 2014
May 0.14 1.89 0.2 (projected)
Jun 0.15 1.94 0.2 (projected)
CCPI ends at 1.94 YoY reported in July again assuming a very strong May and Jun.
Once again not enough inflation for a TLT play. Gas buddy appears to be falling fast now indicating a peak in liquidity.
The VIX has fallen to a low since March 2013. TLT had a good run in April 2013 after a reported ccpi of 2.0 in March (Feb CPI). I think it will be close this time but not 2.0 and 2.0 or 1.99 is required. So I would expect gas buddy to fall away in July. On Jun 17, I expect gcpi to be slightly lower and ccpi to be 1.90.
Perhaps July CPI day will show ccpi of 2.0 but this depends on gas buddy staying elevated through June (last June gas buddy fell). This would lead to a market correction in August perhaps to the 200dma or more if gas buddy stays up.
GCPI is weakly connected to TLT moves indicating a future direction of CCPI.
Also another sign of building inflation…
Rail Traffic Posts New Highs, Jobless Claims Continue to Decline
ALSO:
Employment to Population Ratio same for past 3 months
We’ll only know that for sure as the recovery continues and indicators like the labor force participation rate (the proportion of the population who either have a job or are looking for one) rise significantly. For what it’s worth, it was unchanged in May at 62.8 percent.
Credit Flow Investor 