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The world has been watching every peep, sniffle, or innuendo associated with any voting member of the FOMC. What is the future of the latest in their ongoing market manipulation, in which money is printed to buy bonds to hold down interest rates, spur corporate borrowing, and artificially inflate stocks? Lately, that's all investors have cared about.

Yes, it seems that all anyone has been talking about is the Federal Reserve and the timing of their "tapering" off on quant easing. There was a lot of anticipation going into this latest meeting. Fed chairman Bernanke said on Wednesday that if the economy continues to improve, their asset-purchasing program could start to wind down in late 2013 and conclude in 2014.

Stocks sold off on the news and Treasury yields spiked to 2011 highs. Interestingly, the worst performing sectors during Wednesday's market weakness were the defensive sectors: Utilities, Consumer Staples, Telecom, and Healthcare. In Thursday trading in Asia, stocks, currencies, and commodities are all getting hammered.

Bernanke says they will continue watching the economy for more gains, and only taper asset purchases if the economic data continues to improve in a self-sustaining way. He also deflected questions about interest rate hikes as a separate issue for a later date. Notably, the FOMC meeting reportedly showed a strong majority preferring not to sell mortgage-backed securities during the unwinding process, even though they all agree that the longer term focus should be on Treasuries.

On the negative side, mortgage applications are falling sharply as interest rates rise, which threatens the housing recovery and the important "wealth effect" it creates. This provides some downward pressure on interest rates by making the Fed reluctant to do anything that upsets the apple cart.

Despite the expectation of rising yields, the US dollar has weakened significantly this month. The weak dollar should give a boost to corporate profits among multinationals and other companies with significant overseas sales, as those sales in stronger currencies are converted. Overall, a weaker dollar boosts commodity prices, corporate earnings, GDP, and stock prices.

Actually, stock valuations are still pretty good right now, given current forward earnings expectations. But top-line growth would certainly be welcome. Achieving further earnings growth through productivity gains and cost-cutting can be challenging at this point, as companies are already running pretty darn lean. In fact, it was just reported that Men's Wearhouse (NYSE:MW) has fired founder/pitchman George Zimmer ("You're going to like the way you look. I guarantee it.") I guess nothing is sacred when it comes to cost-cutting.

Looking at the chart of the SPDR S&P 500 Trust (NYSEARCA:SPY), it closed Wednesday at 163.45, which is right on the upper line of the neutral symmetrical triangle I drew last week. So, after bullishly breaking out of the upper resistance line of the triangle, price is now testing resistance-turned-support. Overall, Wednesday's price action means the technical consolidation continues, and might be forming a sideways channel that roughly corresponds with the space between the 20-day and 50-day simple moving averages (SMAs), although I think the long-standing bullish rising channel that has been in place since November will remain the dominant pattern.

SPY chart

The oscillators like RSI, MACD, and Slow Stochastic are still neutral. Strong support exists at the bottom line of the rising channel, followed by psychological support at 160 (corresponding with 1600 on the S&P 500 Index). Below that, there is 154, 150, and the 200-day SMA, which is "support of last resort."

Small caps have been looking particularly strong lately. A chart of the iShares Russell 2000 Index Fund (NYSEARCA:IWM) is similar to the SPY, but the past month's action is shaping up more in the form of a potential inverse head-and-shoulders pattern, which would be very bullish.

Also of note, some commentators are trumpeting the virtues of rotating into emerging markets, given their dismal performance this year, even if just for a "mean reversion" play.

The CBOE Market Volatility Index (VIX), a.k.a. "fear gauge," closed Wednesday at 16.64. Since the beginning of June, it has stayed above resistance-turned-support at 15, but it still has not closed one day above the important 20 level during 2013.

However, keep an eye on the lofty level of NYSE margin debt, which just hit a record high -- above the previous highs last seen in the market tops of 2000 and 2007.

Latest rankings: The table ranks each of the ten U.S. business sector iShares ETFs by Sabrient's proprietary Outlook Score, which employs a forward-looking, fundamentals-based, quantitative algorithm to create a bottom-up composite profile of the constituent stocks within the ETF. The multi-factor model considers forward valuation, historical earnings trends, earnings growth prospects, the dynamics of Wall Street analysts' consensus estimates, accounting practices and earnings quality, and various return ratios. In addition, the table also shows Sabrient's proprietary Bull Score and Bear Score for each ETF.

High Bull score indicates that stocks within the ETF have tended recently toward relative outperformance during particularly strong market periods, while a high Bear score indicates that stocks within the ETF have tended to hold up relatively well during particularly weak market periods. Bull and Bear are backward-looking indicators of recent sentiment trend.

As a group, these three scores can be quite helpful for positioning a portfolio for a given set of anticipated market conditions.

Sabrient SectorCast ETF rankings

Observations:

1. Very little change in the Outlook scores this week. Financial (NYSEARCA:IYF) stays in the top spot with a 79. Stocks within IYF display by far the strongest sentiment among insiders and Wall Street analysts (net revisions to earnings estimates), as well as a low forward P/E. Technology (NYSEARCA:IYW) remains in second with a score of 71. Stocks within IYW display a low forward P/E, a solid long-term projected growth rate, and the best return ratios, although the analysts aren't highly optimistic about their earnings projections.

2. Healthcare (NYSEARCA:IYH), Energy (NYSEARCA:IYE), and Consumer Goods (NYSEARCA:IYK) round out the top five this week. IYH and IYK are buoyed by mostly positive Wall Street sentiment, while IYE sports the lowest (best) forward P/E.

3. Telecom (NYSEARCA:IYZ) stays in the cellar with an Outlook score of 1. It is weak across the board with a high forward P/E, low long-term projected growth, poor return ratios, and negative sentiment among insiders and sell-side analysts. It is joined in the bottom two again this week by Basic Materials (NYSEARCA:IYM) at 22. Materials stocks endured further earnings downgrades from Wall Street. Financial continues to enjoy positive Wall Street sentiment while Materials gets hammered

4. This week's fundamentals-based rankings remain on the bullish side of neutral, although they aren't progressing. IYF and IYW are still at the top, and IYE is hanging in there, too. But it would be more encouraging to see rising scores in IYM and Industrial (NYSEARCA:IYJ).

5. Looking at the Bull scores, IYE and IYJ have been the leaders on particularly strong market days, scoring 56, followed closely by IYF, while IYZ scores the lowest at 44. IYW is showing marked improvement this week (in both Bull and Bear scores). The top-bottom spread has widened to 12 points, indicating slightly lower sector correlations than they have displayed recently. This is encouraging since high sector correlation indicates more of a "risk-on/risk-off" approach in which all boats are lifted together, rather than a thoughtful stock-picking approach.

6. Looking at the Bear scores, IYW has jumped back up as the favorite "safe haven" on weak market days, scoring 57. IYF, IYE, and IYM are tied for the lowest during extreme market weakness as reflected in their low Bear score of 46. The top-bottom spread is 11 points, which is slightly wider than last week and indicates somewhat lower sector correlations on weak market days.

7. Overall, Financial shows the best all-weather combination of Outlook/Bull/Bear scores. Adding up the three scores gives a total of 180. Telecom is the by far the worst at 92. Looking at just the Bull/Bear combination, Technology displays the highest score of 106, while Telecom scores by far the lowest at 91. This indicates that Tech stocks have been the strongest in extreme market conditions (up or down) while Telecom stocks are generally avoided.

These Outlook scores continue to represent the view that Financial and Technology sectors may be relatively undervalued, while Telecom and Basic Materials sectors may be relatively overvalued based on our 1-3 month forward look.

Some top-ranked stocks within IYF and IYW include Signature Bank (NASDAQ:SBNY), Mastercard (NYSE:MA), CommVault Systems (NASDAQ:CVLT), and Cree (NASDAQ:CREE).

Source: Investors Try To Decipher Clues From The Fed