Hoping for Volatility That Just Doesn't Come

 | Sep 20, 2017 | 4:14 PM EDT
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The action on the Fed interest rate decision played out pretty much as I had discussed this morning. The algorithms automatically sold the news because it has a slightly hawkish bias. The policy statement hinted that one more hike was likely in 2017. That produced all the automatic action you would expect when a central banker is hawkish. Equities sold off, interest rates moved higher, the dollar fell, banks rose and gold sold off.

Many market players keep hoping that this sort of response to the Fed will kick up some volatility. Normally, you would expect a reaction in one direction would create an overreaction and then a move the other way. The reverberations help to create some good trading action.

Instead, what happens is that we have automatic dip buying as soon as stocks sell off. We saw it again today. Within 45 minutes of the Fed news, the bounce kicked in and the indices traded straight up into the close. This kept the indices close to flat overall, although the Russell 2000 ETF (IWM) did outperform slightly because of strength in banks that like the prospect of a steeper yield curve.

This dip-and-buy action keeps volatility suppressed and keeps the indices close to even. There is a positive bias to the action, but the only way to make any real progress is with some astute stock picking. The indices have some intraday movement, but they have very limited movement on a closing basis.

Folks who trade momentum believe the market has a tendency to keep doing what it is doing until there is a good reason to stop. Based on that thinking, we should be ready for very little volatility in the indices for a while.

Have a good evening. I'll see you tomorrow.

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