September 14, 2012 Market Summary

Stocks moved higher this week after a third round of quantitative easing (QE3) was announced on Thursday. The U.S. central bank announced that it would keep Operation Twist running through the end of the year, keep the federal funds rate at 0% until mid-2015, and (as a surprise to the markets) purchase $40 billion worth of mortgage-backed securities every month until employment improves.

After already trending upward from potential eurozone solutions announced earlier in the week, some of the major index exchange traded funds (ETFs) broke through key resistance levels after the QE3 announcement. With many of the indexes as fresh year-to-date or 52-week highs, many traders are looking for modest retracements next week, after the QE3 surprise wears off a bit.

The S&P 500 SPDR (ARCA:SPY) ETF made a new year-to-date high this week and now trades at the upper end of a price channel dating back to June. Major support remains at around $140.00 with minor support at the lower end of the channel at around $143.00. Traders will likely be looking for a pullback next week, ahead of any breakout from the price channel, given the high relative strength index (RSI) and MACD readings. But the overall uptrend is likely to remain in tact given the fundamental factors underlying the move higher.

SEE: Momentum And The Relative Strength Index

The Dow Jones Industrial Average SPDR (ARCA:DIA) also broke out to a new year-to-date high from an ascending triangle pattern that dates back to March. Major support will now lie at the $133.00 level at the upper bound of the ascending triangle, while minor support lies at the lower trend line at around $131.50. Again, traders will likely be looking for a modest pullback before any significant move higher given the high RSI and rising MACD readings. Declining volume also continues to be a concern as buying interest may be drying up a bit.

SEE: Trading The MACD Divergence

The PowerShares QQQ (Nasdaq:QQQ) reached a new year-to-date high this week, surpassing its prior highs from late-March and early-April. After breaking out from these levels last week, the index retested the support level at around $68.00 before making another move higher. Traders will be watching for a sustained move higher, as MACD and RSI levels remain relatively healthy at the moment. There are also many catalysts in the tech industry, including the recently released iPhone 5 from Apple - index's largest component.

The iShares Russell 2000 Index (ARCA:IWM) also reached a new year-to-date high, breaking through a prior high established in late-March. The ascending triangle breakout from early-September remains in tact, with only a slight consolidation when breaking the late-March high. Traders will likely be looking for modest consolidation from these levels before a significant move higher, given the high RSI and MACD readings. A likely retracement level could include the late-March prior high or even a retracement to the $82.00 upper ascending triangle support.

SEE: Retracement Or Reversal: Know The Difference

The Bottom Line
Stocks have experienced a strong week thanks to a third round of quantitative easing and continued strength in the eurozone. Traders will be looking for a small break over the near-term after the rise, given the surprise of QE3 is now over, but long-term trends should remain in tact and resistance levels may be a good opportunity to bolster existing positions.

On the other hand, traders should watch for any significant breach of support levels, particular with a high volume. Declining volume in some of the index ETFs suggest that buying interest may be waning until either a pullback occurs or the market reverses. Fundamentally, this pullback would likely be driven from any trouble surfacing in the eurozone.

Charts courtesy of StockCharts.com.

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