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Paring of gains as Fed leaves rates unchanged

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The major indexes have shown some afternoon volatility after the Federal Open Market Committee decided to keep its target for the federal funds rate unchanged at 1.25%.

While the FOMC left rates unchanged, the Committee stated that its bias was weighted toward weakness over the foreseeable futures.

Just after the FOMC announcement at 02:15 PM EST, the Dow Industrials surged to a session high of 8,641.22 after a "knee- jerk" reaction toward selling, but since that high of 8,641, the Dow along with the major equity indexes have been under some selling pressure, with the Dow holding a 10-point gain (+0.10%) at 8,539, S&P 500 Index (SPX.X) grasping a 2.5-point gain (+0.27%) at 929 and NASDAQ-100 Index (NDX.X) 1,144.04 +0.68% still up 7.5 points at 1,143.85 after trading an afternoon and multi-month high of 1,161.00, which was just below our DAILY R2 level in the pivot analysis matrix.

The U.S. dollar as seen sharp selling after the FOMC announcement with the U.S. Dollar Index (dx00y) 95.24 -1.17% plummeting to another 4-year low. In this afternoon's market monitor I made quick note that the June Swiss Franc futures contract (sf03m) 0.7561 +1.4% were surging against the dollar and this move looks to be more "defensive" in nature, than perhaps the trading momentum behind the euro that has been taking place in recent weeks.

I would argue that in comparison with many European economies, the U.S. economy would look to be strong, but the dollar/euro trade would put a "kink" in that type of thinking or analysis.

Still the more "defensive" trade coming from the Franc showing strength, isn't necessarily represented by what we've seen in the Gold futures market. June Gold futures (gc03m) 342.80 +0.05% were up just 20 cents.

Sector action, which had been broadly positive just after the FOMC announcement remains intact, but marked weakness has crept into the Biotechnology Index (BTK.X) 384.75 -1.05%, which now becomes today's sector loser after shares of Amgen (NASDAQ:AMGN) $60.67 -3.23%, Genentech (NYSE:DNA) $37.74 -2.10% and IDEC Pharmaceuticals (NASDAQ:IDPH) $32.53 -4.74% found additional selling late this afternoon. Traders are attributing the selling to a note out of Goldman Sachs in which that firm said there looks to be increasing pressure for Congress to reduce Medicare reimbursements on drugs given in physician offices.

This becomes somewhat suspicious to me after I noted earlier this morning that Fox News reported that Budget Director Mitch Daniels is resigning his post, with a time table given of 30-days.

The Drug Index (DRG.X) 323 -0.39% was just at its session low of 322.19 at the time, but has been hovering at current levels for the bulk of today's session. Daniels was senior vice president for Eli Lilly (LLY) prior to being in charge as Budget Director.

Notes that I made as to "Daniels" past ties with the drug sector and today's departure become interesting per Goldman's notes.

Some drug industry execs were pleased with Daniels position as Budget Director as it eased some concern that Congress might include price controls in its plan to add a prescription drug benefit to Medicare that may have price controls attached. Since Daniels would have been in "control" of the budget, drug execs felt more comfortable with a former drug exec in a position of power with regards to the Federal budget.

Jeff Bailey

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