Thus far, on Monday, the NASDAQ 100 Index (NDX) was leading in terms of relative market strength, with Google (GOOG) and Apple (AAPL) as standouts. Each of these stocks was up over 1% when this article was written, but at the same time the NASDAQ composite index was also testing important levels.
Specifically, the NASDAQ was testing December 31, 2013 levels, 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.
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 propell 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, we are 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas Kee for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.