In The Matrix, Morpheus presents Neo with a choice between a red pill and a blue pill and explains:

You take the blue pill, the story ends.  You wake up in your bed and believe whatever you want to believe.  You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes.

Neo chooses the red pill, of course, and suddenly realizes that the world he has known as reality is a virtual reality construct used to pacify humans who serve as organic batteries (for the machines which are really in charge.)

I couldn’t help thinking about Neo’s awakening yesterday as I witnessed Kelly Evans, one of CNBC’s more intelligent hosts, come to grips with the market’s reality: it’s a construct used to pacify investors who might otherwise question its inexplicable moves.

Ms. Evans was clearly shocked at the market’s sudden reversal after plunging in the wake of very disappointing PMI data.  She seemed bewildered by the apparent machination:

The president seems to be watching this very closely and to be kind of intentionally — look, I’m just going to call it as I see it — be intentionally coming out with a positive headline every time the market slides the way it did.

Even tomorrow’s jobs report, if it’s terrible, should we expect then some further reports about some trade breakthrough with China? …Is it as simple as the data was terrible and then the president came out and had some positive commentary on China and that was all people needed to hear?

The timeline of events illustrates just how ridiculous Kelly’s suspicions regarding Trump’s intentional intervention are.

• 10:00am – ISM non-manufacturing PMI released and disappoints
  
• 10:01am – SPX plunges 22 points in the first minute
• 10:07am – SPX registers a 1% loss on the day
• 10:08am – SPX off 1.09% when everything reverses, heads higher on the day
• 10:35am – Trump stops for some “chopper talk,” briefly mentions upcoming China talks

By 10:35am, as Trump suggested to incredulous reporters that China should also investigate Biden, SPX had already rallied 25 points.  Trump’s comments came 27 minutes after the 10:08 reversal.

It wasn’t ridiculous that Trump would try and prop up the market with another spurious China remark.  He does it all the time.

What’s ridiculous is that the market was so easily “rescued” by manipulating the algos into buying everything in sight. I wrote last week [see: The Big Picture] how spikes in oil, gas and USDJPY and especially breakdowns in VIX cause stocks to rally on demand by sending powerful signals to algorithms which are programmed to notice such things (e.g. volatility is plunging, must be time to buy!)

Maybe it was the BoJ. Maybe it was the ECB.  Maybe it was the Fed.  Remember what Fed Governor Robert Heller argued in a WSJ article in the wake of the 1987 crash, suggesting that the Fed not only had the ability to prop up stocks but should not hesitate to do so.

But wouldn’t it be more efficient and effective to supply such support to the stock market directly? Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.

Maybe it was a major bank, brokerage firm or hedge fund caught on the wrong side of a huge trade and just wanted to postpone the plunge until after all those put options expire today.

It doesn’t really matter.  What matters is that it has become this easy to force the market to turn on a dime.  Sometimes I involuntarily wink when saying the word “market.”

Did I mention that everything reversed precisely at 10:08?  See if you can spot the pattern.

The lead factor, in my opinion, was VIX which spiked 7.5% in the minutes following the ISM report.  It topped out at exactly 10:08 at 21.44 — only slightly lower than Wednesday’s highs — and was then relentlessly crushed. It made seven successive lower lows in the process of shedding 11.2% by the end of the session.

Ordinarily, VIX alone would be enough to stave off a significant drop.  In this case, though, everything else reversed at exactly the same time — seconds after SPX had registered a 1% loss.

A fluke, you ask?  If you’re wondering why futures are higher after this morning’s lackluster jobs report, check out VIX’s latest “breakdown.”

BTW, don’t bother looking for Kelly’s segment online.  I’ve checked, and it’s buried somewhere deep and dark.  Welcome to the Rabbit Hole, Kelly.

continued for members…ES has been all over the map this morning, rising from -13 to +8 after VIX’s smackdown.This has allowed it to slip back into the purple flag pattern and test the SMA100.

It wasn’t only VIX, which is still on track to make new highs.USDJPY and CL took the opportunity to spike higher about 5 minutes after the jobs report was released, though CL is sliding back down.

NKD, which bounced at channel support yesterday (our initial target) should go further to tag its daily cloud.

Here’s the most recently revised roadmap for SPX.  I’ll be working on it throughout the day and over the weekend.  But, the central theme is that we’ll see a backtest of the broken white channel after the flag pattern plays out, ideally on Monday or Tuesday if not today — which appears increasingly unlikely at this point.

Bonus chart for the day: AAPL, which has yet to push out of its rising channel and came close to seeing its rising white channel break down yesterday.

I have several meetings downtown this morning, so will sign off for now.  I should have a chance to post before the close.

GLTA.

UPDATE: 3:45 PM

What a day to have posted about manipulating the market with VIX…

VIX keeps melting down and SPX/ES keep melting up.  VIX has Fib support at 16.97 and SMA200 support at 16.48.

The rest of the factors are behaving, at best, ambivalent regarding more rally.

It’s hard to imagine SPX/ES will get get away without even a SMA200 tag.  Meltups are like that, though, especially going into a weekend.  Keep in mind we consumer credit, PPI and CPI next week — all potential market movers.

As one member just put it, this is getting rather exhausting.  One ray of hope for bears: this is exactly the sort of meltup we’ve seen several times before just before a large downturn which began at the interior TL seen below.

Stocks being near all-time highs also gives Trump et al more confidence going into the trade talks next week — meaning there’s more potential for things to fall apart.  Most experts seem to think China has little incentive to make any sacrifices while Trump under attack and might not survive.  What would happen, for instance, if China postponed their trip?  Remember the market’s response when the farm tour was cancelled!The purple TL above is interesting in a lot of ways, but particularly since it parallels the lines of the largest channel.  The red line below it is the .618 channel line of the channel dating back to the depression.