How Manipulated is the “Market”?

I had the privilege of speaking to a group of bright, young Masters of Financial Engineering students from my alma mater on Tuesday.  After relating some truths about how markets are manipulated day in and day out, I wondered whether the message had been too frank and too, well, depressing.

Are things really as bad as they seem, or have I become too cynical?  I didn’t have to wait long for an answer.

Yesterday’s FOMC statement had the potential to disappoint.  If the FOMC were to publicly acknowledge the elephant in the room — surging inflation that they, themselves, created — interest rates would certainly be much higher than they are and heading higher still.

In the seconds following the FOMC’s 2PM release, SPX started to dip below a very minor trend line (in red below) and the 200-period moving average on the 5-min chart — often intraday support.2017-02-02 SPX 5 0600TPTB responded with a stunning 16.6% smack down on VIX that sent it lower than it has been since February 2007, only .58 above VIX’s all-time low of 9.39.  It was enough to put SPX back above the TL and, briefly, back above the short-term moving averages.2017-02-02 VIX 1 0600Oil, fresh off back-to-back bearish inventory reports Monday and Tuesday, also helped out with a 4% ramp.  Price discovery at its finest.

2017-02-02 CL 5 0645Thinking back, my message probably wasn’t frank enough.  The FOMC hates for the “market: to decline on days it makes rate announcements or holds press conferences.  It’s important to Yellen et al. that investors have confidence in the wisdom of its actions — or, in this case, inaction.

How much longer can this go on?  I don’t really know.  But, it has direct bearing on the outlook for our current analog.  So, I suspect this is the attempt to break out of the pattern that has guided our forecasts reasonably well since August [see: New Analog – Aug 3] and would send prices much lower in the weeks ahead.

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