While I can see why some would suggest these are manipulative practices to slow a decline (I think the parabolic drop would have flamed out anyway at some point soon on an intraday basis), I've been paying attention to this situation that has been long in the making and I think there's a much bigger issue.
As you saw in the last post, despite spot VIX tagging $15.33 and closing up yesterday with new intraday highs today just a day after our custom indicator's VIX buy signal and ironically after record net longs (as of the end of January) were chased out of VIX and moved to net VIX shorts (as I mentioned when showing our custom buy/sell DeMark inspired indicator, VIX traders looke to be on the verge of 2-time losers as the market looks to make as many people wrong as possible in this zero sum game), the intraday VIX reversal was already underway as I just showed as well as the reason for not closing the approx. day and a half old UVXY long idea at an 8% gain.
This is the actual break in the market and timing and no it doesn't look good...
However this is an issue I have been paying attention to for some time. You may remember not so long ago the market was breaking on a near daily basis and on days when liquidity/volume were at extremely low levels, but this occurred across numerous platforms and occurred in numerous market trends (up, down, even lateral/sideways).
I think the most important aspect here assuming it's not manipulation and my gut feeling based on watching these events in numerous market trends is that it's not, is when the poo really hits the fan and liquidity, panic and HFT activity really increase, the structure of the markets (and I suspect it has a lot to do with HFT's clogging up the system) is so compromised that it risks potentially devastating consequences.
If a market is in sharp decline and suddenly a market breaks and people have no way of getting either the best routing or any routing, even more panic sets in. How would you feel if you needed to get out of a position and suddenly you couldn't either because a market was broken or other events relating to a broken market took place like huge bid ask spreads?
This isn't even a broken market, but it does show panic as all of the hedge funds are trying to squeeze out the same narrow exit at the same time...
What caused this panic? The entire hedge fund herd (they have a heard mentality as no one wants to be the outlier who does worse than the crowd) found out that Dan Loeb from Third Point had sold AAPL as it no longer appeared on his top 5 holdings, 1 fund manager who isn't afraid to strike out on his own away from the herd panicked the entire herd in to a stampede.
Now imagine broken markets and the inevitable circuit breakers. I suspect the circuit breakers designed to give the market a "cooling off period", will only serve to cause people to panic further that they can't get out.
While the timing of the break this morning does not look good and does look like manipulative practice, in our last post on intraday VIX I think we had already clearly shown that the first trend change of the day was about to take place, nothing unusual about that and VIX was apparently at least one of the levers to halt the decline for the moment.
Before you ask, "Does that mean that every time there's a break in the market there's going to be an intraday bounce?", first I'll say that this has been normal market behavior for well over a century, nothing moves in a straight line very long.
Secondly I'd refer you to the VXX/UVXY 5 min charts and higher, someone is obviously betting against the VIX net shorts and with a steep market decline...
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