After the prior week’s volatility, some calmness returned to the markets as renewed upward momentum helped the S&P 500 to gain some 1.6% since the last ETF Model Portfolio report.

Bonds are still showing weakness as interest rates have been inching higher, but equities have largely ignored that fact. More in regards to market direction should be known later on today when the Fed concludes its two-day meeting on interest rates.

The outcome and language used in regards to possibly slowing down monetary policy may have a profound impact on the markets. As I posted before, bond ETFs and the metals have been the losers YTD while equities have been on a tear.

Here’s the latest ETF Model Portfolio update:

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[Chart courtesy of MarketWatch.com]

The Major Equity Index ETFs continued yesterday’s momentum to close higher with all eyes feasted on tomorrow’s conclusion of the Federal Reserve’s two-day monetary policy meeting.

The Dow Jones Industrial Average closed 138 points (0.9%) higher at 15,318, the Standard & Poor’s 500 Index rose 13 points (0.8%) to 1,652, and the Nasdaq Composite added 30 points (0.9%) to 3,482.

All ten sectors ended with solid gains, but today’s rally was predicated on the strength of cyclical names. The industrial space rose 1.3% amid outperformance in transportation and defensive stocks. Dow component General Electric settled higher by 2.4% after forging a strategic partnership with Accenture. Discretionary stocks also made a significant contribution to today’s rally as the sector displayed broad strength.

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[Chart courtesy of MarketWatch.com]

Buyers came into the market today as the bulls maintain the Fed still has lingering concerns about the economy and won’t say anything to rattle the market when its two-day meeting concludes on Wednesday.

However, stocks were rattled by a Financial Times story suggesting that Fed Chairman Bernanke is likely to signal the Fed is close to tapering down its $85 billion-a-month in bond purchases. The Dow Jones Industrial Average closed 110 points (0.7%) higher at 15,180, the Standard & Poor’s 500 Index rose 12 points (0.8%) to 1,639, and the Nasdaq Composite added 29 points (0.8%) to 3,452.

Although the story did not contain any new revelations, the mere mention of tapering knocked equities off their highs. Today’s paring accelerated after a British official said the Group of Eight leaders (G-8) see downside risks to the global economy abating even as growth prospects remain weak.

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Below are the latest ETF Cutline reports, which show how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs/MFs are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 398 ETFs, of which currently 39 (last week 313) of them are hovering in bullish territory.

The second report includes only High Volume ETFs. To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher.

These ETFs are generated from my selected list of some 93 that I use in my advisor practice. It cuts out the “noise,” which simply means it eliminates those ETFs that I would never buy because of their volume limitations. 56 ETFs (last week 57) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 795 (last week 804) above the line and 64 below it out of the 859 that I follow.

Take a look:

1. ETF Master Cutline Report

2. ETF High Volume Cutline Report

3. MF Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

In case you missed it, here’s a summary of the ETF topics and market commentaries I posted to my blog during the week ending on 6/16/2013.

The prior week’s roller coaster ride continued as the major market indexes meandered in a range without clear direction. The S&P 500 gave back about 1% as fear of the Fed reducing its monthly bond purchases of $85 billion remains alive and well.

It seems as though we’ve been bouncing off a glass ceiling unable to break through. Until there is clear evidence as to when/if the Fed starts its tapering process, the markets may continue trading sideways until, eventually, a breakout will occur. Too much uncertainty will likely bring the downside into play with a major support level being the S&P’s 50-day moving average, which currently hovers around the 1,600 level.

Over past week, we covered the following:

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The markets are not being terribly logical and they are not expected to be logical in the short-term either, says David Kelly, Chief Global Strategist at JP Morgan Funds.

Though the markets have remained volatile in recent times, fundamentally, the US economy has improved, Dave noted. Also, since the labor participation rate is falling, the unemployment rate will gradually come down with the current pace of economic growth.

However, none of these numbers change the fact the Fed will be forced into tapering the QE. The Federal Reserve can’t continue to buy bonds at a pace of $1 trillion every year and later this year or early next year, they will have to taper the program. As they do that, long-term rates will go up. Rates (or bond yields) may fall on a few occasions in the short run, but ultimately investors should position themselves for a rate hike over then next few months, he added.

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