Stocks rallies should be sold as the Federal Reserve loses credibility on monetary policy and threatens markets, said Peter Cecchini, chief market strategist at Cantor Fitzgerald.

The Fed last week voted to hold its funds rate near a record low of zero percent, where it has been since December 2008 as the global economy shrank the most since the Great Depression. That loose credit policy may lead to greater financial instability, Cecchini said.

“The Fed is too close the problem to contemplate why monetary policy has lost its impact on the real economy, and too close to recognize that the unintended consequences of its policies, like commodity deflation, are greatly overwhelming any benefits to fundamental demand,”  he said in a Sept. 21 report obtained by Newsmax Finance.

Cecchini recommended that investors sell rallies and use put-spread strategies to protect against market dips, especially for the Russell 2000 index of small-cap companies, which was down 2.8 percent this year to 1,170 as of Sept. 21. The S&P 500 index of the biggest companies was down about 4.5 percent this year to 1,966.

“While we are still waiting for more serious cracks in the foundation of the U.S. credit markets before we become more bearish … we'd look to reduce long exposure into an S&P rally (off the recent local low) between 2,000 and 2,050 and a Russell rally into 1,200,” Cecchini said. “We greatly prefer the use of Russell put spreads to S&P strategies.”

For longer-term investors, MarketWatch columnist J.J. Zhang recommends sitting tight through the market declines because historical data show solid rebounds.

“Inevitability the question comes back to what an investor should do,” Zhang said. “The most wrong answer? Panic and sell indiscriminately.”

The S&P 500 last month entered correction territory after falling 10.8 percent from this year’s record high. China’s currency devaluation sparked investor fears that the world’s second-biggest economy was in deep trouble, leading to a global sell-off in stocks.

The 17 market declines since 2009 took an average of 26 days to bottom out and an equivalent 26 days to recover, according to Zhang’s research.

“There’s a possibility of a bigger bottom coming,” he said. “On the bright side, in previous cases, the real bottom was not much lower than the initial low.”

Related Stories:

• Cantor: Stocks May Fall 10 Percent as Fed's Balance Sheet Shrinks
• Abby Cohen: No Need to Chase Beaten-Down Stocks With High Dividends