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This could send stocks lower: Trader

Expect more volatility in the coming weeks and a possible retest of the recent lows if the Federal Reserve doesn't communicate a clear policy next week, trader John Brady said Wednesday.

The central bank is set to hold its next meeting Sept. 16 and 17, and the market has no idea if the Fed will decide to raise interest rates at that time, he told CNBC's "Closing Bell."

"This is exactly the kind of situation the Fed did not what to find itself in, where it's been trying to be transparent and communicate more clearly to the market," said Brady, a trader at R.J. O'Brien. "The market has no clue whether it is going to tighten next week or not and neither does the Fed, and that is going to lend itself to volatility over the coming weeks."

A trader works on the floor of the New York Stock Exchange.
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A trader works on the floor of the New York Stock Exchange.

Jon Najarian, co-founder of optionMonster.com and a CNBC contributor, said the Fed could have been clearer about its policy the last time it met and opted not to.

"They chose to be ambiguous and to give us sort of this glass half full, glass half empty. Most of us would have preferred the opposite, with them being dead on about raising rates in September or saying look it's not going to happen at all, even in 2016. One or the other, the markets would be in a much better place right now," he said in an interview with "Closing Bell."

U.S. stocks dropped more than 1 percent Wednesday, with selling accelerating in the minutes into the close. The Dow Jones industrial average closed down nearly 240 points after gaining as much as 171.87 points in the open.

David Scranton, founder of Sound Income Strategies, said the huge selloffs at the end of the trading day have been emotionally driven. He believes that leaves the average investor, who is taught to buy and hold, in a tough spot.

"The reality of it is in a market like that the average investor can get financial whiplash. So I'm telling people to be really, really cautious right now. We just had a great 6 ½-year runup," he said.

Peter Costa, a trader with Empire Executions, believes that there is going to be some disappointment on the horizon—not only for those who expect a Fed rate hike next week but also in the data over the next couple of months.

"There is another shoe waiting to drop," he said in an interview with "Closing Bell."

"We still have a ways to go. I think there is a lot of risk in this market and I think that you have to be very careful."

However, things are looking much better for the market once there is news from the Fed, said Brady.

"As soon as the Fed gives clarity to the market it's going to be up, up and away again, and we think stocks will be higher three months, six months and 12 months from now but you are going to see a retest of the lows if the Fed fails to communicate clear policy," he noted.

—CNBC's Evelyn Cheng contributed to this report.

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