If the Nasdaq Loses Momentum Now, Watch Out

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

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, Feb.6, stock investment .- A 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. (NYSE:CSC), up 9.16%, and Apple(NASDAQ:AAPL), up 3.5%. Dell (NASDAQ: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.

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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.

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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. ...