NASDAQ 100 (NDX) Could Cause a Breakout

January 13, 2014, 11:19 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

On Monday, the NASDAQ 100 Index (^NDX) was up more than all the other major markets, the Russell 2000 was weakest, and prominent large cap tech companies like Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) were standouts.  These stocks were up over 1% in early trading, and at the same time the NASDAQ composite index was also testing important resistance levels.

Early on Monday, the NASDAQ was testing its closing level from December 31, 2013, and if those levels break the NASDAQ will move into positive territory for 2014 for the first time.  The money flows associated with a break into positive territory could cause momentum to the upside, and the stocks that drive the NASDAQ 100 could see the most benefit from those money flows.  This is already starting to happen in the larger tech names, and the strength in the NASDAQ 100 on Monday tells us to be prepared for a break into positive territory in the NASDAQ Composite soon.

To be more clear, if the market moves into positive territory for 2014 monies that might have been patiently waiting to enter the market could be influenced to do it when the break happens, and at the same time any short positions that were established might also be questioned if the market moves into positive territory for 2014.  This combination can influence momentum to the upside, and if that happens stocks like Apple and Google can continue to receive the most benefit.

However, using Apple as an example, this stock has not yet tested our longer term support levels.  It did test our midterm support levels last week, but it did not test longer term support yet.  Late in 2013 Apple also tested longer term resistance, that existed at the time at $572, and that was a sell signal.  Since then the stock has moved down considerably, and recently it tested midterm support levels, but it has not tested longer term support.

By rule, we should expect a bounce, and the bounce can come directly in line with momentum increases from the market if the market breaks out above the December 31 levels.  The same would likely be true for Google, and the money flows into large cap technology companies influenced almost solely by a break above December 31 levels could influence these and other large cap technology companies higher at least temporarily.

I reference temporarily because, using Apple as an example again, the stock has only tested midterm support levels, it has not yet tested longer term support levels, and that tells us that the stock could oscillate within its longer term channel, moving higher from midterm support to midterm resistance, before turning down again and testing longer term support levels officially.

In fact, our real time trading report for Apple and our real time trading report for Google suggest that the markets could increase and propel these stocks higher if the December 31 levels break, but in each case, as with many other companies, the oscillation will be within the midterm pattern and although a decent trading increase can happen stronger buy signals will not surface until those longer term levels of support that are defined in our analysis for the stocks are tested.

Therefore, Stock Traders Daily is looking for a trading bounce from large cap technology companies like Apple and Google if December 31 levels break higher in the NASDAQ, but the intent will be a short term trade with profits to be taken at midterm resistance levels, expected relatively soon thereafter.

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