We saw some life resurface in the tech-laden NASDAQ last week, as the index followed through on the recent rally and made a serious move towards technical resistance at 2,200, last traded on August 4. With this recent show of buying after October’s decline, the tech barometer, down over 5% in recent weeks, is now within 13 points of its 2004 close.
The ability to hold above key support at 2,000 in mid-October when the index fell to 2,025 was positive and reflected the buying support at 2,000. The latest rally has been impressive.
At this time last year, the markets were rallying to end the year on a high note. We are again seeing a rally form on the charts. However, for it to develop into something bigger, we need to see a sustained break above 2,200. The current trendline is down, but a break at 2,200 could set the stage for more gains.
Compared to a few weeks ago when the near-term technical picture was extremely bearish, the signs have reversed and the NASDAQ is now moderately bullish. The Relative Strength is above average, and the strongest it has been in several weeks. The break above the 20-day moving average was positive, as was the subsequent break above the 50-day and 100-day moving averages.
Clearly, the near-term technical picture points to more gains ahead, including a potential test of 2,200, but the index is also overbought, so we could see some selling pressures on further upside moves.
The key will be whether the NASDAQ can break 2,200 on strong momentum. The three recent up days showed increased volume, a bullish sign. We saw an average of over 1.9 billion shares trade during the up days, including 2.22 billion shares trading last Wednesday. The 10-day moving average was 1.83 billion shares. Watch for higher volume on up days, as this would help support the rally.
Whether the rally continues for the NASDAQ will depend largely on the underlying technical strength I just discussed. So far so good — now we just have to keep a close eye on the situation.