According to the CME Group's FedWatch Tool, there is still around a 17% chance that the Fed will hike rates by a full percentage point here on Wednesday. But if you believe in playing the odds, it's best to assume that a 75-basis-point hike is in the bag. Here's the catch: While we all know a hike is coming in a few hours, most of us haven't got a clue how the market will react.
The fact that we haven't spent the past few days rallying into the Fed meeting is good. The lack of a rally doesn't mean we won't drop lower in the hours and days ahead, but at least we aren't kicking off the rate hike decision from an overbought condition.
Rather than guess how the market will react post-Fed decision, I'll leave you with a range. If the S&P 500 breaks above 3,900, I expect buyers to come pouring back in. And if the bulls fail to break back above 3,900, I'll stay on the sidelines until demand returns between 3,700 and 3,745.
On the Nasdaq, my upside pivot is 11,500. A push above that level brings me into the market as a momentum buyer, while a failure from that level likely sends the index down toward 10,950.
The most important thing is recognizing that this is still a nasty bear market with little bid support. Each day a few more wounded bulls are convinced that buying every dip while the Fed aggressively raises rates isn't a great idea. I guess there's something to that old mantra about not fighting the fed.
The bottom line is there isn't much for traders to do ahead of this afternoon rate decision. However, once this Fed business is out of the way, I hope we will have increased confidence in our short-term direction. Let's not kid ourselves, though. The next few months will continue to be all about the CPI, inflation and how aggressive the next rate hike will likely be.