Last month's inflation ran a bit hot. I don't think it reached a level that will cause the Fed to act this week. However, if we see another tick higher in September or October without any drop in numbers, I expect the Fed to make one more move higher shortly before Thanksgiving.
Until the Fed signals an "all clear," I am focusing on the iShares Russell 2000 ETF (IWM) . Small-caps often feel the weight of interest rate hikes first and hardest. If small-caps are the canary in the coal mine, then the last few months of the year may be a rough go for equities.
After the initial breakdown of the IWM to start the month, we now see a megaphone pattern forming. This is a series of higher highs and higher lows. Small-caps have been hanging around the lows for the past two days. As this is a bearish price pattern, this is not what traders want to see heading into the Federal Open Market Committee decision.
A close under $182 heading into the Fed decision will make for tough sledding for small-cap traders. It also opens us up to a full retracement back to those May lows. If small-caps break down, I suspect we will see large-caps follow suit.
Big names generally have easier access to capital, so I wouldn't expect a break of the August lows. However, I would expect those lows to get a test. I prefer to take a wait-and-see approach into the Fed, then look for long-side setups once we know where we stand.