Short Term Manipulation-SPY Arbitrage and the Levers

For whatever reason, (I'm guessing to effect an op-ex pin as there's a lot of premium on the line and thus profits if the majority of contracts close worthless) there's been an obvious effort to control prices today. As seen in last night's post, the 3C charts are suggesting down is the highest probability over the next few days), however it seems from risk assets and the SPY arbitrage chart that they've been trying to either hold the market in place, slow the rate of decline or maybe even are attempting to lift it.

Yesterday in this update I documented the same behavior in VXX we saw right before the sharp decline on 4/15 and then yesterday, the VERY next post, I documented the same behavior seen in TLT again, just before an op-ex Friday with the decline on Monday. 

The gist of the behavior can be summed up as VIX futures (via VXX) were not making lower lows as they should have with the market making higher highs-in fact the highs of the week, this is because of REAL organic market demand for protection as smart money was fearful of a decline and bidding up VIX futures, keeping VXX from falling any further and instigating our long UVXY trade. The same behavior was found both time (incl. yesterday) in TLT which is a Flight to Safety asset which would not fall to lower lows because real demand was keeping prices steady, the same thing that happened before the sharp decline of 4/15. Note both UVXY and TLT are up today.

So far HYG seems to be the asset of choice (HYG, VXX and TLT are the 3 assets used in the construction of the SPY arbitrage model from Capital Context).


Here are some examples with an updated SPY arbitrage chart...

 As we already saw, they were defending the market early this morning against sharper downside at the green histogram, then before we had a current update of this 30 min delayed chart, I pointed out they were using HYG to hold the market or slow the rate of decline, sure enough as the updated chart came in, the histogram is green again.

However, I think they are going to have trouble and a hard time at least in trying to use HYG to manipulate the market because it seems (according to the 3C charts), that natural supply (sellers) are starting to overwhelm the manipulated HYG higher price than SPX performance would normally suggest.

VXX has so far been contained today, limiting some of the SPY downside damage, although I don't think this can hold long, here's why...

The same chart on a longer perspective is quite positive.

TLT

 They seem to be doing the same with TLT today, even though it has gapped up strongly, there may be some profit taking here as well.

However the accumulation from yesterday was quite strong, I can see further upside here and that means downside for the market.

Most importantly, HYG...

Although they've been able to keep HYG from falling with the SPX and therefore positively effect the SPY arbitrage to some degree-obviously not enough, the holders of High Yield credit are overwhelming the manipulators as there is a sharp negative divergence suggesting the sellers through real supply and not manipulation are likely to send HYG lower and the market with it if they can't force VXX or TLT down.