The major U.S. indices had another record-breaking week last week, driven to new highs by stronger-than-expected earnings by many blue chip names. While the U.S. unemployment rate reached a four-year low at 7.4% and factory activity rose to a 2-year high of 55.4, the lackluster labor force participation rate of 63.4% has caused concern among investors. These metrics prompted the Federal Reserve to issue a statement making it clear the U.S. still has a long way to go.

International indices moved largely higher on the positive U.S. data and improvements in eurozone economic figures. Britain’s FTSE 100 rose 1.34%, Germany’s DAX 30 rose 1.92%, and Japan’s Nikkei 225 rose 2.38% on the week. In the eurozone, ECB President Mario Draghi stated that recent economic indicators signaled that the region was now through the worst of the economic crisis, although officials plan to keep rates low for the foreseeable future.

SEE: Economic Indicators That Affect The U.S. Stock Market

The SPDR S&P 500 (ARCA:SPY) ETF rose 0.64% last week, as of early trading on Friday morning. After extending to new highs last week, the index remains at a critical resistance level and below R1 resistance of 172.31. Traders should watch for a breakout above these levels to the R2 resistance at 175.90 or a move down to the pivot point and 50-day moving average levels of around 165.00. Looking at technical indicators, the RSI appears overbought at 66.63, while the MACD remains indecisive, but is potentially entering a bearish crossover.

The PowerShares QQQ (NASDAQ:QQQ) ETF rose 1.61% last week, as of early trading on Friday morning. After reaching new highs last week, the index appears to have broken through trend line resistance and sits just below R1 resistance at 77.54. Traders should watch for a breakout from these levels to R2 resistance at 79.30 or a move down to the 74.44 pivot point or 50-day moving average at 73.31. Looking at technical indicators, the RSI appears overbought with a reading of 70.09, but the MACD has so far avoided a bearish crossover.

SEE: Understanding Pivot Points

The SPDR Dow Jones Industrial Average (ARCA:DIA) ETF rose 0.21% last week, as of early trading on Friday morning. After moving to new highs last week, the index rests just below trend line resistance and R1 resistance at 157.90. Traders should watch for a breakout above these levels to R2 resistance at 160.95 or a breakdown to the pivot point at 152.97 or the 50-day moving average at 151.93. Looking at technical indicators, the RSI remains overbought at 62.67, while the MACD appears to be close to a bearish crossover.

The iShares Russell 2000 Index (ARCA:IWM) ETF rose 0.76% last week, as of early trading on Friday morning. After barely reaching new highs last week, the index remains just below a key R1 resistance and trend line resistance level of 106.69. Traders should watch for a breakout above this level to R2 resistance at 109.72 or a move down to the 50-day moving average of 99.75 or 101.95 pivot point. Looking at technical indicators, the RSI remains overbought at 66.02 and the MACD recently experienced a bearish crossover that could suggest downside ahead.

SEE: MACD: Triggering Trades in Oscillating Markets

The Bottom Line
The major U.S. indices reached new highs last week, but technical indicators suggest that they may be overbought with key resistance levels ahead of them. Looking towards next week, traders will be closely watching numerous economic indicators, including international trade data on August 6th and jobless claims data on August 8th. But given the lofty levels of these key indices, traders should always brace for potential downside ahead.

At the time of writing, Justin Kuepper did not own shares in any of the companies mentioned in this article.

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