ChartAdvisor For July 4, 2014

Major U.S. indices moved higher over the past week, with the Dow Jones Industrial Average setting a new record just before Independence Day. According to the Labor Department, the economy added 288,000 jobs and the unemployment rate fell 0.2% to 6.1%, which is the lowest since September 2008 – before the economic crisis. These data point to durable signs of recovery, despite concerns about the Q1 2014 slowdown that turned out to be much more severe than initially reported.

International markets moved largely higher across the board. Japan’s Nikkei 225 jumped 1.21%; Germany’s DAX 30 was up 2.18%; and, Britain’s FTSE 100 rose 1.59%, as of the close July 3. In Europe, the European Central Bank (ECB) responded to concerns of a slowdown in its recovery by promising low rates for an extended period. In Asia, China reported a sudden surge of activity in its June PMI for the first time this year, which suggests that the region’s largest economy may be rebounding.

The SPDR S&P 500 (SPY) ETF rose 1.26% higher during the shortened holiday week. After rebounding from its pivot point at 194.42, the index moved higher to test its upper trend line and R1 resistance at 197.80. Traders should watch for a breakout from these levels towards its R2 resistance at 199.87, or a breakdown back towards its pivot point. Looking at technical indicators, the RSI appears overbought at 74.50 and the MACD appears elevated.

The SPDR Dow Jones Industrial Average (DIA) ETF rose 1.26% higher during the shortened holiday week. After breaking out from its R1 resistance at 169.45, the index moved towards its upper trend line and R2 at 171.02. Traders should watch for a breakout from these levels to new highs or a breakdown back towards its R1 resistance. Looking at technical indicators, the RSI appears overbought at 68.52 and the MACD continues to trade relatively even.

The PowerShares QQQ (QQQ) ETF rose 2.08% higher during the shortened holiday week. After breaking out from its R2 resistance last week, the index reached its new R1 resistance at 95.23. Traders should watch for a breakout from these levels towards R2 resistance at 96.56 or a move back down towards its prior trend line support and pivot point at 92.82. Looking at technical indicators, the RSI is very overbought at 83.65 but the MACD experienced a bullish crossover.

The iShares Russell 2000 (IWM) ETF rose 1.2% higher during the shortened holiday week. After rebounding from its prior R2 resistance, the index reached its prior highs just below its R1 resistance at 120.98. Traders should watch for a breakout from these levels towards R2 resistance at 123.60 or a move back down to its prior highs at around 118.00. Looking at technical indicators, the RSI appears overbought at 69.09 but the MACD remains in a bullish uptrend.

The Bottom Line

The major U.S. indices moved largely higher over the past week, but many of them appear overbought based on RSI readings and uncertain MACD levels. Next week, traders will be watching a number of important economic events, including FOMC minutes due out on July 9 at 2:00 p.m., and jobless claims due out on July 10 at 8:30 a.m., as well as any additional insights from the U.S. Federal Reserve.