Why is the Nasdaq 100 Ready for a Monster Breakout?
Here is my recent article for the Trading Deck at MarketWatch.com
By J.C. Parets
The more times that a level is tested, the higher the likelihood that it ultimately breaks. This is usually the case regardless of whether a particular security keeps bouncing off support or continuously bumps its head against resistance.
For the Nasdaq 100 ($QQQ), we are witnessing the latter. $59-60 has been tested numerous times throughout this past year. First in February, then again in May, one more time in July, and now it appears as though we're headed for a November test of resistance.
(click chart to embiggen)
For a little background on this particular issue: patience has certainly been a virtue. After a false breakout in July, PowerShares $QQQ Trust broke down hard and didn't find support until it reached the highs of last April. This was probably the shakeout necessary to set up a big move higher. Spring 2010 resistance turned out to be major support at the August and October lows down near $50.
Now remember, this is not a fundamental story at all. I don't really care about Europe or double-dip recessions or who our president is or isn't. All we're talking about here is that resistance above us keeps getting hit. Price action is pure. We know that there are sellers just under $60 — this has been proven all year. So let's use some logic for a minute: If there were sellers here in February and there were sellers again here in May, and again in July, simple math tells us that less and less market participants are willing to sell here. Why? Because they've already sold. The point is that as more and more sellers willing to sell have already sold, eventually everyone willing to sell has already sold. What happens then? Nothing but buyers are left. The result is what we call, "a breakout".
If we're correct in this assessment, in the future, this breakout level around $60 should become support, or a floor, on any attempts to break below again. Why is this the case? Because as we mentioned above, when all of the sellers eventually run out, the only ones left at this price are buyers. On any retest, if all we have are buyers, we would expect another rally.
So what is the catalyst that is going to take us higher in first place? Let's breakdown some of the major components of the Nasdaq 100. The biggest of all of them is obviously Apple ($AAPL). How high can it go? A lot higher probably. The trend is our friend here and that trend is clearly up. But let's try to forget about America's favorite stock for just a minute. Look at what is happening in some of these other overlooked names:
You can read the rest of the Trading Deck article over at MarketWatch.com
Tags: $CSCO $ORCL $MSFT $INTC