This chart shows a very nice up/down profile and SPY buy turns in conjunction with bollinger bands and OEXd.
1) OEX weekly early signal but wait to see 2,3
2) BB daily X to bottom and first ‘up’ to see turn from bottom
3) OEX daily X 4dma to confirm turn
Jun 25 (OEX,BBd), Aug 27 (OEX, BBd), and Oct 9 (BBd, Oct 9 OEXd turned).
I anticipate a X after the Fed mtg with a turn Jan 8-14. The rep congress won’t shutdown again resolving the issue before Jan 15 this time.
I am watching these two come down and it looks like Jan 8 may be the buy date instead of Dec 19.
When the OEX 4 day moving average (OEX 4dma) turns after falling 8-10 points, look to buy in the 78-82 range. The fall period has been 2-4 weeks.
ROC level coming down. The May-Jun period took 41 days to bottom. Nov. 6 was the last peak at 7% so 40 days puts it at Dec 16 and the Fed Mtg is Dec. 18. Economy is weaker in November than October. The Christmas Rally this year would start from a low on Dec 17/18 with most of the run until Jan 8. Jan 15 starts the debt debate again.
Lowest Inflation Level Since 2010
With inflation so low, QE will continue for some time. SPY rebounds will continue.
ROC20 is falling. When it falls -1 to -4.5 about the Fed meeting Dec 18, watch for OEX to cross above the 4dma (should be an ‘up’ day). This worked very well on Oct 9 but I didn’t catch that one. This time watch OEX 4dma on/just after Dec 18.
I expect the 4dma to start moving down shortly.
If ROC falls and OEX 4dma moves down to Dec 18 then-
When April inflation was low, May had a very good rally as now rising ROC20 7.5%. We have now seen the same with Sep inflation and Oct/Nov rally.
However, there’s a chance that the minutes / meeting will emphasize possible taper just as in May. Down after the minutes and up after the Fed meeting. The Fed wants to limit the upside of the SPY hence the taper policy. In May this lead to a fall of -4.5% in June. It’s a strong possibility that December will also see a -4.5% by the time of the Fed meeting or shortly thereafter Dec 18-23 (buy SPY when it re-enters the BBd after falling below it). A rally from Dec 23 to the Jan 29 meeting would occur. Most of the gains would be Dec 23-Jan 8 (Fed minutes).
Cash is best now until Dec 18-23 time frame.
Notice PCE inflation falling and rising fed balance sheet!
Charts below from http://www.oftwominds.com/blognov13/SSA-cash11-13.html
Here is money velocity, diving to new lows.
This is the problem now. As the economy slows, the asset bubbles are blown bigger and bigger. Despite record QE, disinflation (falling inflation) continues – PCE price index change year over year is falling.
See chart on debt driven growth. Notice that debt and growth worked together until 1980. Now more debt is created than growth. How much more debt is created above GDP growth?
I see this cycle continuing as the policy is not to reform but simply to push harder on monetary policy. However, when the bubble bursts, recession becomes likely.
Investors think they get ahead with asset bubbles but only Wall Street does with bonuses/commissions. It’s like a roller coaster where you’re entertained/having fun with the ups and downs, but all the while you fall further behind as you end up lower than where you started. If asset bubbles paid off, why is the number of 55+ people still working at record highs?
See also…
Taleb: “Debt does not create growth it raises the risk of catastrophe”
I agree with this…
I expect gcpi to fall further so this allows a stronger SPY response off the next low. Gas buddy is the lowest since 2010 (3.19) so consumers will have plenty to spend. Once again the Fed doesn’t care about bubbles only inflation.
Nov. 21-27 will be after the Fed minutes. The market should drop to 173-175 in this time frame (ROC20 will be 176 in this time). If SPY hits the bottom of the BBd and ROC20 is a minus, I say buy for Christmas rally. This reminds me of February this year where ROC20 is a minus and SPY hits the bottom of BBd.
During this SPY bull every ROC- event was followed by a significant rally. See Dec 2012, Feb 2013, Apr, Jun, Aug, and Oct. The rally lasted 1 month from the bottom. The biggest drops (Jun and Aug) are due to taper talk when gcpi is close to 2.0. The last bottom was Oct. 9 and the peak was Nov. 6. Peak to trough is 3 weeks. So I would expect the trough at -1 (low trough due to gcpi being so low) to be Nov. 25-27.
The last 2 Fed minutes (Aug. 21 and Oct. 9) were the times to buy.
If Nov. 20 at close SPY is on the bottom of the BBdaily, I say buy. If it is near the top or the middle, wait for it to hit the BBd bot perhaps 5 days later(Nov. 25). Indicated level at this point would be 173 as the BBd bottom is rising fast. Based on 173 bottom, SPY would hit 180-181 on morning of Dec. 18 and that would be the time to sell.
If SPY falls from Dec. 20- Jan 23 due to debt debate, it will hit the BBd bottom sometime Jan 23-29 (Fed mtg). SPY may hit the bottom on the Fed meeting (Jan 29) this time. The Fed meeting is 1 week before debt debate resolution deadline. Last time the market bottomed Oct. 9 which was 1 week before debt cutoff.
Debt debate will be resolved by Feb. 7 regardless.
Gas buddy is falling nicely at 3.23 giving the consumer extra spending money for Christmas and February after debt resolution.
SPY should still pull back although I am not shorting the market as ccpi and gcpi are too low. The mutual funds and wall street will be looking to take end of year profits that has been going on for many years. As September and October have been very good, November should see another pullback. The best time to play a SPY rebound will most likely be Nov. 25. When SPY hits the bottom of BBd, I say buy. The Christmas Rally will follow and a good time to sell will be Dec. 18 in the morning say 10-11am. Recently the peak price was the morning of Oct. 30 just after the Fed announcement.
Credit Flow Investor 