February PPI came in at twice expectations: 0.6% versus 0.3%. In a replay of the CPI print, stocks dipped for a few seconds before resuming their overnight ramp as algos were more focused on VIX dropping through its 50-DMA just in time for OPEX.
VIX did pop above the 50-DMA…for several seconds. It got better.
Indicators such as RSI still remain on edge.
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February headline CPI came in at 0.4% versus 0.3% expected (and January.) Core CPI registered a 0.4% rise versus .03% forecast and 0.4% prior. YoY, headline was up 3.15%, up from 3.09% in January and a slight beat of the 3.1% expected, while core rose 3.8%, down from 3.9% in January.
Shelter and gas price increases were responsible for 60% of the rise in February.
This is in keeping with our Gas v CPI model which shows a slight uptick in MoM pricing in the midst of a YoY decline.
The short-volatility algos were busy this morning, with VIX diving more than 5% in minutes to back below the 200-DMA.
Futures, which might have been expected to tumble on the expectation of further delays to FOMC rate cuts, rallied instead. 
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More fun and games from the market-rigging department…
If SPX’s rally has impressed you, check out the Nikkei. Since its Aug 26 lows, NKD is up a whopping 13.8% — more than twice SPX’s impressive 6.0%.
Do what I did and google “Japan” and “economy” for the past month and you’ll see nothing but negative stories including this one which confirms a “worsening economy” even before the effects of the recent 25% increase in the consumption tax have been absorbed.
So, why the 13.8% rally? Unlike the Fed, the Bank of Japan makes no secret of the fact that it buys stocks. In fact, the BoJ and the government pension fund are the two biggest owners of stocks in the Nikkei 225.
Thanks to negative rates, investors pay the BoJ to hold their cash. So, it costs the bank nothing to buy up everything in sight. All they have to do is make sure the stocks never decline in value. This is accomplished in two ways: (a) buying more stocks (throwing good money after bad); and, (b) by manipulating the currency (the yen carry trade.)
Lately, the yen carry trade has been working overtime. At some point the yen could theoretically get too cheap; so, the USDJPY is reset lower most nights when the low-volume futures markets are more easily propped up.
When the cash market opens, though, the USDJPY takes off. I’ve highlighted the period between 6:30am and 4:00pm in the chart below. The effects on the NKD are immediate. A few nanoseconds later, the S&P 500 futures join in. The algorithms which drive 90% of all US equity volume watch USDJPY like a hawk.
What happens if, for some reason, the USDJPY can’t be driven any higher or is busy resetting when extra assistance is needed? We’ve written often about the benefits derived from hammering VIX futures. Another favorite of central banks is oil futures.
As the chart below shows, it works exactly the same way as the yen carry trade. The only difference is that higher oil prices reverberate through the real economy, affecting nearly every business and consumer in fairly short order. So, the manipulation requires a little more finesse. 
The Fed has its own trading desk, presumably with the ability to dabble in the futures market. Their cost of funds is essentially zero as they can print money any time they like. Imagine how fun it will be when interest rates go negative and investors pay them to drive stock prices higher.
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About a month ago, as part of the series of charts inspired by our latest analog [see: Analog Details Feb 7, 2018] I hazarded a forecast for RUT that called for a rebound to the rising white channel (which had recently broken down) by Feb 14, a retracement on Mar 1, and a subsequent rally back into the rising white channel. 
The only serious uncertainty at the time was whether ES’ tag of its SMA200 was sufficient — or whether SPX would need to follow suit.
In any case, SPX did go on to tag its own SMA200 the following day, meaning RUT posted a slightly lower low before rebounding. It reached the white channel on Feb 14 as expected, but continued leaking higher for several days before putting in a low as scheduled on Mar 1.
Since then, it has nonchalantly rejoined the rising white channel as though nothing was ever wrong. It has done this many times in the past, of course. So, that’s not terribly noteworthy.
What is interesting is that the Feb 9 plunge facilitated an important backtest that should help determine whether it has further upside ahead. What’s fascinating is the extent to which nearly every one of RUT’s twists and turns has been driven by algos.
The precision of these moves leaves little doubt that they’re by design. No random walk, here.
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