Large-cap technology stocks have become the darling of this market recently. Currently that's not saying much, but these stocks have weathered the storm well, and they are starting to dig out of the hole the market has dug over the last couple weeks.

Technology stocks showed good relative strength vs. the market during this correction, but the selling did finally penetrate the sector, as the selloff accelerated and traders started throwing the baby out with the bath water.

Thursday's blowoff move to the downside pulled the Nasdaq 100 (NDX) back to a significant support level, which should define the downside boundary for the price action in the sector for now.

Nasdaq 100 vs. S&P 500

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The NDX has moved below the lower trend channel line to find support at the consolidation/base formation that developed late last year at the 1850 level. Considering the extended downside nature of the current move, this support level should prove to be important.

The broader


index reached intermediate-term oversold levels last week as the selling finally penetrated the technology sector and traders moved into panic mode. An oversold reading in our internal indicators also supports the idea that the pullback to support will hold, and the test is significant.

The longer-term technical configuration for the index remains bullish. The primary uptrend remains intact in the daily chart, but the real story for the NDX is the long-term weekly chart.

The group has only recently started to emerge from a long-term base formation, as stocks like

Cisco Systems

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try to turn up from the large bases formed over the last five years and resume new uptrends. A breakout from a long-term base formation like this suggests to us that this index could get some legs to the upside.

Powershares QQQQ Trust

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The best way to trade this index is with the

PowerShares QQQQ Trust


. Traders should pick the QQQQ up at the $45-$46 level and use a violation of the blowoff low set on Thursday at $44 as the stop-loss point.

This trade should give investors a solid risk/reward scenario. Set the first target for the group at the prior highs set in July and use that rally to gauge the health of the market. A breakout to new highs should signal a resumption of the uptrend and a return to a healthy trading environment for the group.

At the time of publication, John Hughes and Scott Maragioglio were long Cisco and the Proshares Ultra QQQ. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.