NEW YORK (TheStreet) -- The markets opened to the downside on Wednesday. However, in what seems like common behavior for the indexes these days, the Dow Jones Industrial Average and S&P 500 (^GSPC) quickly were bought by the dip buyers.
For the rest of the morning and early afternoon, the indexes traded in a narrow range awaiting the Federal Reserve's policy making committee.
After the Fed's announcement, the indexes sold off initially. They tried to regain their footing but continued lower. With the announcement of increased tapering from the Federal Reserve, which means they will continue to reduce their bond buying stimulus program, the markets were not able to recapture the upside.
By 3pm New York time Wednesday, the markets completely fell apart, falling nearly 200 DJIA points. This stock market has been relying on the Fed for all of its liquidity. It may very well be time for the markets to face reality.
The last hour of trading saw whip saw action. The DJIA cut its nearly 200 point loss to under 100 points, before closing down 113 points at 16223.46. The S&P closed down 11.41 points at 1860.84. So, where do the markets go from here?
Patience and opportunistic trading is required in this type of market. Chasing can only be a recipe for disaster. 2013 is over. 2014 is a new ballgame.
The markets are confused right now as to which direction they should proceed. They are getting mixed signals. With the economy showing signs of slowly and a weak dollar, increasing the taper seems to be the absolute wrong course of action for the Federal Reserve to take at this time. The tapering should have taken place last year when the dollar and interest rates were rising, not falling, and the economy was on a much stronger course.
Once again, the overall volume continues to shock to the downside as the markets signal another v-bottom bounce.
Monday had the 2nd lowest NYSE volume of the year and Tuesday was the 3rd lowest volume day of 2014.
Wednesday, however, showed a return of above average volume on a down day. This has been the pattern in 2014. The up days have shown much lower volume than the down days. That is something that needs to be watched carefully.
Turning our attention to some economic numbers that came out. This weeks total MBA Mortgage Index was down -1.2% vs -2.1% last week as demand continues to fall as interest rates fall.
It also appears that the corporate profit cycle is slowing as FedEx Corp (FDX) projects fiscal year 2014 earnings per share estimates of $6.55-$6.80 vs the street estimates of $6.73-$7.10.
There are many crosscurrents that are taking place in this stock market in 2014. Unlike 2013, where a buy and hold strategy was the norm, 2014 is shaping up to be a buy the dip, sell the rip trading platform. Volatility is the norm so we must accept that fact and act accordingly. Risk management is paramount.