The major U.S. indices moved significantly higher this week, after the U.S. Federal Reserve surprised the market by deciding not to taper its bond buying programs. By artificially keeping interest rates low, the central bank wants to continue supporting economic growth after downgrading its outlook for 2013 and 2014. But, many investors remain wary of an artificial bubble in the housing market and corporate earnings due to the quantitative easing.

Foreign markets followed the U.S. markets higher, with Japan’s Nikkei 225 rising 6.36%, Germany’s DAX 30 rising 1.97%, and Britain’s FTSE 100 rising 0.45%. Emerging markets were among the best performers after the U.S. Federal Reserve’s decision, since low interest rates have forced investors to look towards these markets for yield. In particular, Indonesia saw a robust 5% gain on the announcement after being hit hard the past couple weeks.

The SPDR S&P 500 (ARCA:SPY) ETF rose 1.54% this week, as of early trading on Friday morning. After reaching its R2 resistance and upper trend line at 172.97, the index gave up some of its gains and is poised to close the week off of its highs. Traders should watch for a breakout from these levels on the upside next week, or a move down to R1 resistance and the 50-day moving average at around 167.50. Looking at technical indicators, the RSI appears overbought at 70.33, but the MACD remains in a very bullish uptrend since earlier this month.

The PowerShares QQQ (NASDAQ:QQQ) ETF rose 1.82% this week, as of early trading on Friday morning. After breaking through its R2 resistance last week, the index moved past its upper trend line to set new highs this week above 79.00. Traders should watch for an ongoing move higher or a retest of this trend line on the downside and a potential move to R2 resistance at 78.22. Looking at technical indicators, the RSI appears overbought at 70.04, while the MACD remains in a bullish uptrend since earlier this month.

The SPDR Dow Jones Industrial Average (ARCA:DIA) ETF rose 1.41% this week, as of early trading on Friday morning. After breaking above its prior high, the index took a downturn just before its upper trend line at around 158.00. Traders should watch for a test of this level on the upside or a move down to R1 resistance at 153.04 on the downside. Looking at technical indicators, the RSI appears overbought at 69.45 alongside many of the other indices, but the MACD remains in a near parabolic upswing since earlier this month.

The iShares Russell 2000 Index (ARCA:IWM) ETF 2.16% this week, as of early trading on Friday morning. After moving higher to test its R2 resistance at 107.47, the index leveled off towards the end of the week to around 106.93. Traders should watch for a breakout from these levels towards its upper trend line on the upside or a move down to its R1 resistance and 50-day moving average on the downside at 103.93. Looking at technical indicators, the RSI remains more modestly overbought than the other indices at 66.76, but the MACD suggests a robust bullish uptrend since the beginning of the month.

The Bottom Line

The major U.S. indices moved largely higher this week following the U.S. Federal Reserve’s announcement. While RSI indicators suggest that the indices may be overbought and due for a correction before a significant move higher, MACD trends remain bullish for the most part across the board. Next week, traders will be watching a number of economic reports, including durable goods and new home sales on the 25th, jobless claims and GDP on the 26th and personal income and outlays data on the 27th.

Charts courtesy of StockCharts.com.

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