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Can the Nasdaq Break Out on a Santa Claus Rally?

The Nasdaq is hitting all-time highs in the final week of 2020. Who saw that coming?

As we went into the long holiday weekend following a short trading session on Dec. 24, I was curious how the end of the year would play out.

Would the averages push higher to new all-time highs on a strong Santa Claus rally? Or would stocks hit the brakes and give us a dicey finish to a wild 2020?

So far, it’s the former that’s playing out. And it’s not just the Nasdaq hitting new all-time highs, but also the Dow Jones Industrial Average, S&P 500 and Russell 2000 -- although the latter has coughed up most of the session’s gains.

I have been asking aloud for weeks now, just when would mega-cap and large-cap tech stocks wake up?

While the gains in high-octane growth stocks have been nice, the absence of Apple  (AAPL) - Get Apple Inc. Report, Amazon  (AMZN) - Get, Inc. Report, Microsoft  (MSFT) - Get Microsoft Corporation Report, Facebook  (FB) - Get Meta Platforms Inc. Class A Report, Netflix  (NFLX) - Get Netflix, Inc. Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report has been notable.

For the most part, this group has been chopping sideways. However, if they ever woke up -- and really, it’s more a question of “when” -- it could be what carries the Nasdaq significantly higher.

Is that day upon us? With the whole group up on the day, it may finally be here for a Santa Claus rally. Let’s see what that means for the Nasdaq.

Apple, Amazon, Microsoft, Facebook and Nvidia are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL, AMZN, MSFT, FB or NVDA? Learn more now.

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Trading the Nasdaq

Daily chart of the Nasdaq Composite.

Daily chart of the Nasdaq Composite.

On Friday Dec. 18, the Nasdaq climbed to new highs and faded from those highs, before bulls bid the index back up towards breakeven.

The next session -- on Monday the 21st -- the Nasdaq opened lower at its 10-day moving average and fell as much as 1.8% before buyers again stepped in and bid it back up. The index finished lower by 0.07% on Friday and 0.1% on Monday.

Despite the sellers’ best efforts, they couldn’t crack the Nasdaq, which was a huge sign for the bulls.

The tune is much different this Monday, with the Nasdaq quickly pushing to new highs.

If it can continue higher, I want to see if the Nasdaq can get to the 13,035 to 13,045 area. There it finds several key extension marks and may act as a solid short-term target for the bulls.

On the downside, it’s hard to be bearish with the Nasdaq above the 10-day and 21-day moving averages. It’s also hard to be too bearish if the strength in mega-cap tech continues.

Below these key short-term moving averages will push traders into a tactical stance, potentially putting the 12,075 area and 50-day moving average in play, whichever comes first.