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.
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)……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.
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.