Indecision ahead of today's Fed meeting resulted in range-bound, sideways action yesterday, but stocks ultimately closed lower. Small and mid-cap stocks again showed the most relative weakness. The Russell 2000 Index fell 0.6% and the S&P Midcap 400 lost 0.7%. The Nasdaq Composite followed closely behind with a 0.6% loss, but the Dow Jones Industrial Average only dropped 0.2%. The broad-based S&P 500 closed 0.3% lower. Each of the major indices closed near the middle of their intraday ranges, confirming the lack of direction.

As we often see ahead of Federal Reserve Board meetings, turnover dropped in both exchanges. Total volume in both the NYSE and Nasdaq exchanges came in 22% below their respective levels of the previous day. It was positive that stocks closed lower, but did so on positive volume. However, don't forget that we are smack in the middle of the summer doldrums, a time in which many traders and investors typically take their annual vacations. Since volume was among the lightest of all the sessions we have seen this year, one can not read too much into yesterday's action "under the hood." Nevertheless, negative market internals confirmed the overall weakness in the broad market. In the Nasdaq, declining volume exceeded advancing volume by a margin of 5 to 2. The NYSE was negative by only 3 to 2.

Not surprisingly, action was mixed among the individual sectors and most industries closed near unchanged levels. Although the iShares Silver Trust (SLV) has already broken out above its prior high from last month, the spot gold commodity and the StreetTRACKS Gold Trust (GLD) has yet to do so. The Gold and Silver Sector Index ($XAU) advanced 1.1% yesterday, but GLD is still toying with resistance of its primary downtrend line. As the chart below illustrates, GLD is definitely at a "make it or break it" level that should result in a significant volatility expansion over he next several days:

If GLD manages to rally above its four-day high of 65.22, it should lead to a momentum-driven rally that takes it much higher. However, GLD could just as easily be good for several points on the downside if it fails to break out above the downtrend shown above. Either way, you may want to consider buying or selling short GLD, depending on which way the volatility expansion takes it.

The driving factor that will move the markets in today's session is whether or not the Feds raise interest rates again. This time, Wall Street is divided on whether or not we will see another quarter-point hike in the Federal Reserve Rate. We feel that speculating on the market's reaction to either scenario is foolish and a waste of time. Instead, we will treat the news as we always do by trading the market's reaction to the pending interest rate announcement rather than anticipating what will happen. Rarely does the market react in a logical way, so astute traders should lay low on the sidelines, waiting to pounce in either direction. We are prepared either way, depending on market sentiment after the 2:15 pm announcement. There still are not many sectors we like on the long side, but a few leading industries will quickly emerge if stocks react favorably. Pharmaceuticals (PPH) would likely be one of them. As for the downside, the broad-based ETFs of the small and mid-cap sectors (IWM and MDY) should be among the first to fall if the broad market tanks.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks.  For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.