After being burned badly twice, traders turned much more cautious in front of Wednesday's Federal Open Market Committee interest rate decision. Monday's bounce was quickly wiped out on Tuesday, and the mood turned very gloomy. A late-day bounce took some of the stings out of the action, but breadth was still very poor at almost four-to-one negative, and, most notably, the number of new 12-month lows expanded to over 1,100.
There has been quite a bit of talk about a possible "buy the bad news" reaction to the Fed rate hike. The logic is that the market is already accepting the likelihood of a three-quarters-percentage point hike and some hawkish comments, so there isn't likely to be a big negative surprise. Even better is that the market has not run up like it did in front of the consumer price index report or Jackson Hole economic symposium.
Regardless of the short-term movement on the Fed news tomorrow, we are still dealing with a market that is in extremely poor shape technically and looks destined to test the June lows eventually. Bonds are creating a massive headwind, and many traders are puzzled about why there isn't any big spike in the volatility indexes.
In the short term, we should have some interesting movement on the Fed rate hike tomorrow, but longer term, this market is showing no signs of hitting bottom. There still is little reason to build longer-term positions.
Have a good evening. I'll see you in the morning.