Adding More TLT

I was shaken out of my long trade yesterday and went short. I did well on the trade, but didn't get back into my SPY long. I closed the day by buying calls on TLT, thinking it had to bounce if stocks keep rising. Sure enough.

Similar to the summer, TLT is a high confidence long for me because I can see a scenario where it rises no matter what the stock market does. I added more TLT on this morning's dip.

This flows into my next point: I am a bear and haven't been shaken from my longer-term view. However, I don't see inflation rising. I foresee inflation giving way to deflation as it did in 2008. If you are a bear because you think inflation will remain elevated, then I have bad news. The CPI is coming down. If crude slides into the $70 range, my hunch is the past three months will be close to zero inflation. With about a third of September gone, crude needs to slide to around $75 by midmonth to accelerate disinflation. very possible looking at the chart. A drop into the $60 by late month wouldn't surprise with this setup.

The Federal Reserve is going to keep rates high and wait for confirmation of falling inflation, which is partially why I am bearish. If you don't think the economy will weaken enough, then I think you should be bullish. Without a substantial drop in economic activity, a substantial drop in inflation will act as a tailwind for the economy. It may be that stocks are still overvalued and headed for a decline. It could be that inflation will reaccelerate in 2023 and pull the plug on this bull market for good. In the interim though, the stock market could rally. If I can forecast:

I expect next week's CPI will be negative.

Stocks will rally hard expecting a pivot (75 bps is expected now).

The Fed drops the hammer on September 21 by raising 75 bps. In presser, Powell says the negative CPI is a blip and doesn't change policy.

Stocks begin move to new lows.

Looking at possible targets, the first stop for the euro is the 1.03 area.

I have 4120 area as a target for the ES. Could go higher given how much it has already run up. It might depend on whether the market thinks 50 bps is more likely after the CPI and whether that delusion runs all the way to September 21 or not.