Stocks opened lower yesterday despite the big earnings from Apple (NASDAQ:AAPL) announced after the close on Tuesday. But after the Fed announced that it would keep the federal funds rate at 0% to 0.25% until at least late 2014, stocks jumped and the Dow Jones Industrial Average ran to a new multi-month high.

This was a surprise since the Fed had indicated that rates would remain low until mid-2013. The move was obviously timed to encourage the public to sell bonds and buy equities. Another result of the announcement was a sharp drop in the U.S. dollar and an increase in commodity prices.

At the close, the Dow was up 81 points to 12,757, the S&P 500 gained 11 points to 1,326, and the Nasdaq rose 32 points to 2,818. But volume on the NYSE remained low at just 833 million shares while the Nasdaq traded 517 million. Advancers exceeded decliners on the Big Board by more than 3-to-1 and by about 2-to-1 on the Nasdaq.

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Yesterday’s Fed-induced rally drove two of the important indices to new inter-month highs. The Dow industrials rose to within 21 points or so of its top resistance line at 12,800, and the S&P 500 ran through its resistance line at 1,320 by several points. 

But we should note that on both charts one of the most significant indicators that historically signals an overbought condition, the Relative Strength Index (RSI), is flashing important overbought signals. 

The Dow, at RSI 70.26, is higher than the July double-top that led to the nasty July/August nightmare and is within several points of the April high at 72.42 that also led to a pullback. And the S&P 500 shows similar overbought numbers — in fact, even more extreme than the Dow’s RSI.

Conclusion: The Fed’s surprising announcement of extending low rates for another 16 months or so brought buyers into a market that may be topping. The low volume and lower-than-normal breadth are hints that yesterday may have been the top of the current rally. Let’s keep our powder dry until this phase of the advance has either run its course or a significant breakout occurs.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.