What in the world just happened?
The Fed has done exactly what the market figured it would. The S&P 500 (NYSEARCA:SPY), Dow Jones Industrial Average (NYSEARCA:DIA) and Nasdaq (NASDAQ:QQQ) showed small gains all day since the open, which is understandable after three consecutive negative days. Then at 3:30 p.m. Wednesday terror struck. The market dropped and heavily sold off. What gives?
As we all know, the Fed rate has remained unchanged. Everyone knows this was going to happen (except for the few believers) so this market drop should not have happened. But, it did. There is no way the Fed can win in this situation. Everything it has said has been recalled. Every statement it once believed in, no longer applies. What is an investor to do when the Fed has signaled fundamental weakness? SELL OFF!
Look people, it took about an hour and a half for investors, traders and managers to figure out what the Fed exactly meant in today's meeting. Remember one thing: When consolidation occurs the path of least resistance is not higher, it is lower. If you were to look at fundamentals it agrees with my statement that the market will move lower. If you look at the technicals that confirm the fundamentals, it will show the market is moving lower. My article from Tuesday foreshadowed this event on Wednesday.
The tiny move up today before the Fed's announcement is a dead cat bounce. I strongly urge investors to reconsider their positions and prepare for some hurt. The fact that the Fed has pulled back its rate increases for the next 2 years shows that it does not have confidence in the strength of the current market. Yellen saying that "it is hard to figure out the weakness in the labor market" should be a red flag from miles away.
I know this article may confirm a lot of people's beliefs; and I know this article will receive a lot of criticism. I just ask that readers look at the big picture and look at what market information was given today. Large sell-offs after "bullish market news" is, well, not bullish!
In summary, I think the topics I discussed with readers in Tuesday's article confirms Wednesday's movement. Despite the Fed being extremely dovish in Wednesday's statement, the market sold off hard 30 minutes before close. Wednesday's actions may have turned the tides on who still believes in this ghost bull market. Readers know where I stand in this current market environment. If the Fed tells you that it is preparing for weaker market conditions by extending accommodative measures, that should be all the news you need to solidify your fundamental analysis. All comments and responses are welcome and encouraged.
Happy investing and be safe out there. Follow for weekly market updates.
Disclosure: I am/we are long V, DHT, PSEC, XLE, SHORT SPY THROUGH BEAR CALL SPREADS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.