The Precise Take – Anemic response to FOMC Announcement—end of Q2 09 in sights

Yesterday saw the lowest point range in the cash S&P 500 (14.43) since the June 29, 2007 announcement that increased the Federal Funds target rate by 0.25 to 5.25.  Not coincidentally (at least as far as we believe), this was the last such rate increase prior to the easing that would eventually reach the current 0.00 to 0.25 range, and was not too far in time from the eventual October 11, 2007 all time high in the S&P 500.  The ES failed at the 907.75 gap area prior to the report and did not have enough momentum on the no-news Announcement to force any short covering.  Though the Fed did not accomplish much as equities were down and the yield curve spectrum was up, they were not materially changed.  It seems the Fed is in a position of…

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Morning report may be delayed by 15-30 min.

2:27 pm EDT:  The least likely scenario (with 20/20 hindsight) has played out–nothing–a 5 point range 10 minutes afterward.  A break of the 899.50 to 904.25 range will determine direction, but we no longer expect any significant short covering rally.  The tone of the Announcement is slightly bearish for equities as the FOMC is getting more hawkish on inflation, though they have pledged to the target rate low for an extended period.

The ES has broken through a few resistance levels but has stopped short of a day-session-only price gap area beginning at 907.75 (extending to 914.00).  We would not even be surprised to see this gap filled ahead of the FOMC announcement at 2:15 pm.  Per our early morning report, we analyzed price action in the S&P 500 when the Federal Funds Rate approached its 0.25% ceiling target since it was instituted on Dec 16, 2008 and found nothing particularly insightful.  On the announcement, be aware of the 2/3 chance of a 3 wave impulse that sees continuation and a 1/3 chance of a reversal from the initial move.  A breakthrough 920 could see significant additional gains for the day.  Failure there could see a large reversal.

The Precise Take – Markets slightly stronger overnight ahead of FOMC meeting

Yesterday, the ES made a low of 884.25, which was a bit higher than we would have liked to be “the” low of the down move from contract highs.  The scenario we outlined yesterday that lead to a short covering rally on the FOMC Announcement saw a shakeout of weak longs below 880.00, which did not happen and is less likely to happen today. The shakeout would provide added fuel to any short covering rally.  With New Home Sales at 10:00 am and a 5 Year Note Auction at 1:00 pm ahead of the 2:15 pm Announcement, we could see volatile trade as volume should be below normal prior to the Announcement.  The $40 B 2 Year Note Auction yesterday was the strongest in two years, though the yield curve spectrum was up slightly, partly due to…

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The daily pivot area of 894.75 to 898.50 from the morning report provided early resistance (high of 894.50), and the ES has nearly approached critical support of 875 to 880.  This is a general area because the lows will differ on the cash, SPY, Sep 09 futures and continuous futures.  NYSE adv:decl ratio, which began slightly positive is now slightly negative.  If we approach 880 in the ES without the ratio getting below -3.0 (-1.93 now), we would finally fish for longs, but only after a bounce that retraces and does not retrace more than 61.8%.  Shorts can enter at from 887.25 to 889.00, but should consider tight stops and profit targets as the markets are getting oversold into heavy support

The Precise Take – Approaching critical support into FOMC Meeting

Of the two scenarios we outlined yesterday with a bearish bias, the bearish one is indeed unfolding.  To reiterate, we are expecting critical support for the ES at 875 to 880 to be tested prior to the FOMC announcement at 2:15 pm tomorrow, and possibly violated, at least momentarily, to shake out weak longs, after which time, we could see a…

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The ES has broken last week’s low, so the pattern we have been following (extreme negative sentiments in the NYSE advance:decline ratio leading to bottoming within two days and posting subsequent new highs) is now a dead possibility.  We expect there are many other patterns people have been following in this 2009 rally that are also breaking down.  The ES has found marginal support at the 898.50 level, which is close enough to the 900 level to attempt a long with a stop just below 898.50.  However, should the ES trade below weekly S1 at 897.00, we would not be bottom fishers today until around the 880 area.  Shorts are expected to enter at 902.50 to 904.50.  If the ES breaks above 905, we would hold out for 911.00 as a short.  If the ES breaks above the pivot at 916.50, we would no longer look for shorts.

This morning, the Dec 09 gold futures contract bounced off its 61.8% retracement support from the April low to the June high.  In the rally begun March 09, previous bounces of gold off support have lead to minor corrections in equities.  However, I believe if gold bounces strongly from here, it could lead to a larger sell off in equities as they are more vulnerable than before.  If gold falls farther, it could provide minor support for equities.

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United States, Switzerland Agree to Increased Tax Information Exchange

WASHINGTON–As part of the Obama Administration’s aggressive efforts to enforce U.S. tax laws and reduce offshore tax evasion, the U.S. Department of the Treasury today announced the conclusion of negotiations with Switzerland to amend the U.S.-Switzerland income tax treaty to provide for increased tax information exchange.  Official signing of the protocol is expected in the next few months.

“This Administration is committed to reducing off shore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules,” said Treasury Secretary Tim Geithner.  “This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion.”

The protocol would revise the existing U.S.-Switzerland income tax treaty to allow for the exchange of information for income tax purposes to the full extent permitted by Article 26 of the Organization for Economic Co-operation and Development (OECD) Model Income Tax Convention.

In recent months, the Administration has demonstrated its commitment to closing the tax gap.  At the G-20 Leaders’ Summit, the U.S. strongly supported efforts to ensure that all countries adhere to international standards for exchange of tax information.  In the FY 2010 Budget, the Administration delivered a detailed reform agenda to reduce the amount of taxes lost through unintended loopholes and the illegal use of hidden accounts by well-off individuals.  The Treasury Department recently concluded Gibraltar’s first-ever tax information exchange agreement and also signed an agreement with Luxembourg to provide for greater exchange of tax information.