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.TPTB 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.Oil, fresh off back-to-back bearish inventory reports Monday and Tuesday, also helped out with a 4% ramp.  Price discovery at its finest.

Thinking 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.

continued for members…

I’ll stick with my 2262 downside target for now, but it’s predicated on CL dropping through its SMA5 200 and VIX staying above the SMA50 at 12.14.

ES suggests a path, but this morning’s initial bounce has it above a second fan line from Dec 4.Aside from the occasional breakouts, which are quickly extinguished, VIX continues to follow the falling white channel.  Note that yesterday’s plunge backtested a smaller falling channel, so there is some hope for bears.CL’s levitation has it almost back to new highs after “breaking down” from the rising purple channel from early November.  This, despite continually bearish inventory and rig count data.

UPDATE:  10:45 AM

We should get a bounce here, as CL has reached a TL of support.  It will depend on whether or not VIX’s SMA 5 200 holds.

UPDATE:  12:00 PM

SPX backtested the yellow midline and reversed, and is now testing the SMA5 200 again.  We should see the drop continue here, though there is potential TL support at 2272ish. The ES chart is interesting from the standpoint that the biggest rebound was from the .786, which would indicate a Butterfly Pattern in the works (if it can break below 2261) targeting the 1.272 at 2238.76 or the 1.618 at 2222.24.That big a drop in SPX to, say, 2245, would mean more than a backtest of the broken red channel — a breakdown back into a falling channel that SPX broke out of very aggressively.  Obviously, if the backtest had been allowed to take place Tuesday afternoon or at the open yesterday morning, we could have seen the .886 tagged at the same time.

Now, an .886 tag wouldn’t backtest the red channel, leaving any subsequent bounce with less momentum.  All to save 5 points… UPDATE:  3:49 PM

Lots of opportunities to break out today, but no takers.  I assume they’re delaying out the inevitable and would hold short overnight if you’re able to hedge or deal with the potential for an overnight ramp.