NASDAQ 100 Index (NDX)

Can The NASDAQ 100 Index Break Above Big Resistance?

Posted in NASDAQ 100 Index (NDX) on August 24th, 2009 by admin – Be the first to comment

Jim Donnelly, Olson Global Markets

Do stock market recoveries always follow a script? Well, many investors and analysts alike do look for repeating structural clues to help determine whether an economic turn-around is for real, or just a “head fake”. Featured clues that have been helpful over the past 20 years center on the either the financial sector or the tech sector (or both) to pave the way for a renewal in growth expectations.

It is very clear that financial stocks have already made a dramatic turn around higher from the depths of the March lows. Stability in the banking system is part of the reason. Credit demand and availability issues, however, remain less clear. Nevertheless, money center common shares as well as their preferred issues have risen sharply in the wake of the “stress test”. Subsequent financial maneuvers to raise equity by issuing more common stock, or by converting outstanding preferred issues into common, have been important factors. Better than expected inventory levels and housing numbers have been positives as well.

Also moving to the upside with some vigor have been tech stocks. The chart of the NASDAQ 100 Index (NDX) has jumped nearly 61% from its November 2008 and March 2009 retest lows. Recent earnings reports from the likes of CSCO an HPQ have surprised to the upside with earnings, but have had less positive results regarding top line revenue growth. Nevertheless, investors appear to be entertaining the thought that a floor has clearly been seen in the NASDAQ 100 index with more upside gains very possible.

That said, the NASDAQ 100 Index is quickly closing in a test of two forms of trend line resistance (both located near the 1,670 area) that are important technically. On weekly charts, overbought conditions are now present which suggests a break above the 1,670 resistance area may be formidable over the short-run without a correction occurring first. A solid break above 1,670, if it occurs however, would be seen as a technical “breakout” and a terrific sign of strength.

Stay tuned. This key test is nearly upon us.

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