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Will Santa's Rally Deliver the Nasdaq to Record Levels? Let's Check the Chart.

The Nasdaq has rallied more than 5% from Monday's low. Can it continue to new highs? It just needs to clear one major level to have a chance.

The Nasdaq has been a leader versus the S&P 500 over the recent decade. That’s as FAANG and other megacap tech stocks have come to sport massive valuations.

That’s Microsoft  (MSFT) - Get Microsoft Corporation Report, Apple  (AAPL) - Get Apple Inc. Report and Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report, but it’s also Nvidia  (NVDA) - Get NVIDIA Corporation Report, Adobe  (ADBE) - Get Adobe Inc. Report and other superstars.

While the Nasdaq vastly outperformed the S&P 500 over the past three, five and 10 years, it has underperformed the broad-based index in 2021.

That’s mostly as the bear market in growth stocks has torn through the technology sector, even as many of its larger components have performed quite well.

So far this year, the Nasdaq is up an impressive 21.4%. However, that lags the S&P 500’s 25.9% return.

While growth stocks are trying to put in a bottom, bulls are trying to figure out whether the Nasdaq can hit new all-time highs before the end of the year.

Specifically, can it do so in the last week of the year, the so-called “Santa Claus” rally?

Trading the Nasdaq

Daily chart of the QQQ ETF.

Daily chart of the QQQ ETF.

If one looks at a chart of the Nasdaq Composite, it’s 3.5% off its all-time high. That was made on Nov. 22 at roughly 16,212.

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But the Invesco QQQ Trust ETF  (QQQ) - Get Invesco QQQ Trust Report and Nasdaq futures have less ground to make up: They're down just 2.75% from the highs. Of course, those highs were also set on Nov. 22.

For now, let’s just use the QQQ ETF, since that has the widest access for investors.

The QQQ is working on its third straight daily gain and is currently up 5.35% from Monday’s low. So is it possible that it tacks on another 2.75% by next Friday?

Absolutely, but it will not be an easy climb and would represent an 8.3% rally from Monday’s low.

It’s very clear that the $400 level has been resistance. We almost tested that level last week but faded from the upper-$390s and found support at the rising 21-week moving average.

Now that it's rallying again, the $400 to $401 area is back in focus. If the QQQ ETF can clear this level and close above it, that technically opens the door up to the high at $408.71.

Above that and new highs will be made, allowing us to look at some potential upside extension levels.

It’s worth reiterating that while new highs may be on the table, achieving them in the next week will be difficult. That’s even as the S&P 500 and Nasdaq have finished the week higher 70% of the time in the past 19 years.

On the downside, a dip back to the $390 to $392 area that finds support should be viewed as bullish. That’s as the QQQ ETF finds support from the 10-day, 21-day and 50-day moving averages.

Below the 50-day and traders will start looking for a possible retest of the $383 level.