How smart money is approaching Wednesday’s decline

By Jani Ziedins | End of Day Analysis

Sep 20

Free After-Hours Analysis: 

The S&P 500 shed 1% Wednesday after the Fed kept interest rates unchanged.

That non-move was widely expected, so stocks were not responding to the September rate decision, but to what the Fed said about the remainder of 2023 and 2024. At this point, the Fed’s data telegraphs one more rate hike this year and keeping rates that high through the end of 2024.

None of this surprises anyone because the Fed’s been consistent in their messaging for weeks, if not months. But it does poke a hole in the hopes that the end of this tightening cycle is closer than 2025.

That said, odds are good the Fed isn’t going to stick to its plan through the end of 2025 because when else have they correctly forecasted the economy a year and a half ahead of time?

Most likely, the Fed is simply leaving the door open to further hikes so they don’t disappoint investors if they need to hike again. This is the classic under-promise, over-deliver.

Since the Fed decision and outlook were exactly what the crowd expected, it is already priced in, and we shouldn’t expect Wednesday’s selling to turn into anything more than another test of 4,400 support. It takes new and shocking developments to send the stock market into a tailspin, and we didn’t get anything remotely close to that Wednesday afternoon. Two steps forward, one step back. Rinse and repeat.

As I wrote Tuesday evening, I am approaching this as a buying opportunity. The only question was if I was going to buy a pop Wednesday afternoon or wait through the dip and bounce:

I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.

Since the market didn’t pop Wednesday afternoon, that means I’m trading the dip and bounce. Maybe we bounce Thursday morning and never look back. Maybe we fall a little further under 4,400 support before bouncing. Either way, I’m waiting for the bounce and then jumping aboard. The lower this goes now, the more money I make buying the bounce in a 3x ETF.

Anyone trading Wednesday’s decline like the world is ending clearly isn’t paying attention. The market is consolidating the summer’s gains near 4,400 support—nothing more, nothing less.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.