If the Nasdaq loses momentum now, watch out

Negative pressure is building as the index struggles to overcome its next barrier.

By InvestorPlace Feb 6, 2013 2:33PM

Worried Man copyright CorbisBy Sam Collins

iplogoA broad-based rally led by technology stocks Tuesday overcame most of Monday's losses. Late profit-taking cut into some of the Dow’s gains, but the S&P 500 and Russell 2000 managed to hold onto most of the early gains.

Seven of the 10 S&P sectors advanced, led by Computer Sciences Corp. (CSC), up 9.16%, and Apple (AAPL), up 3.5%. Dell (DELL) gained 1.1% after agreeing to be acquired by Michael Dell, Silver Lake for $13.65 a share.

At the close, the Dow Jones Industrial Average was up 99 points to 13,979, the S&P 500 rose 16 points to 1,511, and the Nasdaq jumped 40 points to 3,172. The NYSE traded 701 million shares and the Nasdaq crossed 472 million. On the Big Board, advancers outpaced decliners by 2.5-to-1, and on the Nasdaq, advancers were ahead by 2.6-to-1.

Nasdaq Chart

Click to Enlarge

Trade of the Day Chart Key

The Nasdaq is still having a problem definitively breaching the barrier at 3,171, which it must overcome before attacking the high at 3,197.

Negative pressure is building. MACD is overbought, and unless the red (fast) line turns up soon, the index could turn down through its 20-day moving average at 3,136 and spend time consolidating at the support line at 3,100.

If the index loses momentum now, it will be like the impact the lights going out at the Superdome had on the Baltimore Ravens this Sunday -- the index may recover, but it will take more time to regroup. The next support under 3,100 is the 50-day moving average at 3,063.

Russell 2000 Chart
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The Russell 2000 has paused, but unlike the Nasdaq, it has broken free of any overhead, and thus, hasn’t lost momentum. The next support for the Russell 2000 is at 894 (20-day moving average), which was also last week’s low.

Like the Nasdaq, the Russell 2000’s MACD is overbought, and profit-taking could lead to a pullback and consolidation.

Conclusion: Despite Tuesday's rally, the major indices are not moving ahead with the same momentum as they did in mid-January. But they are well-positioned for an eventual break, even if it comes later on. Many levels of support exist on each index, and so investors could benefit from the many opportunities that a pullback would provide.

More from InvestorPlace

Feb 6, 2013 6:45PM

It`s amazing how bearish people are on these sites.I think they have missed the bull

market the last 4 years and now it`s sour grapes time.

Feb 6, 2013 4:25PM

The Nasdaq only had a good run because of Apple and other tag-along Techs....


Great Markets does not a NASDAQ make...So soon we forget, when it was in the 4-5000 range. !!

Feb 6, 2013 10:54PM
It's all about Q4 2012 results vs. Q1 2013 forecast and they both have to beat or meet expectations. If you miss either you're going to get punished since everyone's scared of the spending cuts coming in March and the snowball effect  Time to batten down the hatches with solid financials and dividends.
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