Equation:

Risk Off +

FPC (Fed Policy Change) +

VIX 15+

-0.6%- Market Reaction (correlates with VIX 15+)

Unfortunately, Risk off hasn’t occurred in January.  While Gas Buddy has come off, normally you need a build up of risk off / oil down for a month or so (FXC has also been RSI 50+ for most of Jan). Unlikely now that Feb will be a run down on SPY.

Good news is that the Fed wants to raise rates 3 times this year. While Trump and the new President ‘spoiled’ the potential Jan or Feb run down, the new President effect will be over now for 4 years. Also Trump has driven the risk on/off chart downwards giving lots of opportunity to the upside later in the year and next year. Risk off will cross in the next month or so and build up (need some upward momentum in Risk off chart) to the June Fed Meeting when the Fed will most likely raise rates again.

Then there’ll be a run down in July.

A Sep FPC will also result in a run down in October.

And a Dec FPC will result in a Jan 2018 run down.

FPC occurred in Dec so a Jan drop was expected. The idea of a ‘delayed’ SPY drop due to the new President may still have a play. While the charts are saying ‘no’, Yellin did come out to speak right after CPI Jan 16 (context is rising GCPI and too hot stock market) so it is still possible the Fed uses unusually strong language in the Feb 1 meeting diverting the market. But only 5% chance as VIX is only 10 and 15+ is required!

Lowest VIX in 5 years: