VIX: Just Another Tool

Every once in a while, we get a nice little reminder that VIX, traditionally a reflection of risk in the markets, has become just another tool by which central bankers and their lackeys drive markets.

Early this morning, the S&P 500 eminis were breaking down from a channel established over the past several post-election weeks.  The channel, shown below in purple, was silly enough to begin with.2016-12-02-es-60-0745

Had the breakdown been allowed to occur, ES might have dropped all the way to (and, I shudder to think) the SMA20 at 2175 — a 0.4% plunge that surely would have sent investors screaming into the streets.

At precisely the moment that ES was backtesting its broken channel (the yellow arrow)…2016-12-02-es-5-0745…VIX decided to plummet 13% — dropping through multiple levels of support.  ES, of course, responded by rejoining the (no-longer) broken purple channel and continues to modestly rally, comfortably in the green.2016-12-02-vix-5-0747

I have a term I use for such instances as this morning’s: a shot across the bow.  It’s a stark reminder to bears that unauthorized declines can and will be harshly dealt with.

It’s no secret that markets are constantly manipulated.  And, it’s never a surprise when VIX is enlisted to nudge prices in one direction or another.  It’s frequently hammered in the closing minutes of a session to allow stocks to close on a positive note.

But, this was a particularly clumsy effort that should make even the most die-hard believer in market purity and efficiency at least a little more skeptical.


VIX: Just Another Tool — 1 Comment