As most economists expected, the Fed left rates unchanged in yesterday afternoon's announcement, and said it stood ready to provide "additional accommodation" if necessary. This caused the stock market to undergo its usual post-Fed volatility in the afternoon before finishing with mixed results. The Dow Jones Industrial Average eked out a gain of 0.1%, but both the S&P 500 and Nasdaq Composite declined 0.3%. The small-cap Russell 2000 and S&P MidCap 400 indices lost 0.8% and 0.6% respectively. Because of a sharp spike higher immediately following the Fed announcement, which subsequently faded, all the main stock market indexes closed in the bottom third of their intraday ranges.

Total volume in the NYSE rose 10% above the previous day's level, while turnover to Nasdaq ticked 5% higher. The higher volume losses of the S&P 500 and Nasdaq Composite caused both indexes to register a bearish "distribution day," indicative of institutional selling. But after nine straight days of gains, a round of profit taking by the bulls was not shocking. Typically, a healthy market can digest one or two "distribution days" within a short period of time, without correcting sharply. Nevertheless, we will be on the lookout for more instances of selling among mutual funds, hedge funds, and other institutions.

Since our entry into iShares Emerging Markets Bond Fund (EMB) on September 13, the ETF has traded in a tight, sideways range. However, the recent price consolidation of EMB has enabled the 50-day moving average to rise up and provide support just below the short-term range. As such, it now appears as though EMB is poised to break out above the highs of its consolidation, and resume its dominant uptrend. This is shown on the annotated daily chart of EMB below:



Although we are already long EMB, traders who missed our initial entry point could find a valid buy point above the September 16 high of $109.82 (marked by the dotted horizontal line on the chart above). Since yesterday's closing price was $109.61, there is a good chance EMB will move above that price in today's session, thereby confirming a move back above its 20-day exponential moving average as well. As a bonus, remember that EMB also pays a substantial monthly dividend. On September 1, for example, EMB distributed a dividend of $0.44 per share.

On September 20, just two days ago, both the S&P 500 and Nasdaq Composite broke out above the highs of their respective four-month trading ranges. While this is a positive sign for the broad market, it's notable that both indexes experienced a bout of distribution just one day later. If the stock market is to follow a common pattern of recent months, we could easily see both indexes fail their recent breakouts by sliding back into their previous trading ranges. Frankly, a substantial retracement from current prices would be healthy for the market, and would provide us with much lower risk pullback entry points on strong ETFs that have been racing higher (such as several emerging markets ETFs). We have been maintaining a watchlist of ETFs with relative strength, and are actively monitoring these for decent price retracements. We will point out these setups in The Wagner Daily as they present themselves.

While the initial, knee-jerk reaction to yesterday's Fed announcement was relatively muted, we typically do not see the real reaction to FOMC meetings until one to two days later. As such, traders should be prepared for a bit of volatility over the next several days, as institutions digest the implications of the details from yesterday's announcement. Since the stock market has a way of doing the opposite of what people expect, whenever the most number of participants expect it, we would not be surprised to see an initial failure of the S&P and Nasdaq's obvious breakout levels from two days ago. At the least, one should be prepared for a period of price consolidation ("correction by time") for at least a week or two.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.