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Nasdaq 100 Moves Into Overbought Territory, But Gains Can Continue

Market technician Dave Chojnacki of Street One Financial examines Tuesday’s small rally, updates important technical levels for the major indexes, and looks at the factors likely to influence the wider markets today.

Big Open, Mediocre Close

The market opened higher on Tuesday, as slightly better than expected Trade Balance numbers were reported. The major indices moved toward new highs early in the session, with the DJIA and NDX hitting new highs early in the day. By late morning, we saw equities come off their highs and prices fall through early afternoon.

The major averages spent the afternoon trading mostly sideways, with the DJIA and SPX ending with small gains. The NDX was the strongest in the session with a moderate gain. At the close, the DJIA gained 37.8 points, the SPX inched up just 0.52 of a point, and the NDX added 0.35%.

Nasdaq Rally Overdone?

Breadth was slightly negative, 1.1 to 1, on below average volume. ROC(10)’s declined in the session, but remained in positive territory. RSI’s inched up in the session, with the NDX ending at 71.5, moving into overbought territory.

The DJIA and SPX remain in the low 60’s. The DJIA and SPX MACD continue below signal. The NDX MACD remains above signal. The ARMS index ended the day at 1.52, a bearish reading. Early strength had the DJIA and NDX moving to new highs. The DJIA could not hold on to those highs, but the NDX closed at 5185 and 5196 intra-day for new highs. The SPX got within a point of its all-time intra-day high of 2300, but closed 5 points below its record closing high of 2298. The SPX also closed 13 points above its 20D-SMA of 2280.

It was bit of a strange session, with the major indices testing record highs, while breadth was negative and we saw small-caps fall. This was evidenced by the IWM (Russell 2000) falling 0.44% in the session. Yesterday’s session upheld the strength in technicals and more upside is expected.

The VIX finished down 0.7% to 11.29, maintaining extremely low volatility. Near term support for the NDX is at 5175, 5172 and 5150. Near term resistance is at 5188 and 5200. Near term support for the SPX is at 2288 and 2280. Near term resistance is at 2298 and 2300.

Wednesday Malaise

Europe is mixed in early trade, while U.S. Futures are pointing slightly higher pre-market. The only major economic report on tap today is the Crude Inventories report, due at 10:30am. Once again, earnings reports will likely provide the bulk of the market-moving news, as we continue to progress through earnings season.

The PowerShares QQQ Trust, Series 1 ETF (NASDAQ:QQQ) fell $0.09 (-0.07%) in premarket trading Wednesday. Year-to-date, QQQ has gained 6.59%, versus a 2.42% rise in the benchmark S&P 500 index during the same period.

QQQ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 33 ETFs in the Large Cap Growth ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki

Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.

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