Where Will the Nasdaq Go Next? It Depends on Apple

Driven by five major technology stocks, including Apple Inc. (AAPL​), the Nasdaq 100 outperformed the market through the spring and into the summer, but for the last six weeks, the index has been trending sideways in consolidation mode.

Along with other major indices around the world like the Dow Jones industrial average and Germany's DAX, the Nasdaq 100 has been attracting renewed interest this week. The index has rallied to retest the 6,000 round number where it peaked in late July. This retest could end in a big breakout to all-time highs that would signal the start of a new upleg, or a double top that could leave the Nasdaq 100 vulnerable to another correction. 

Whether this test ends in a breakout or a top may depend on how traders react Tuesday to news from Apple, which is the index’s largest component stock. The company is holding a major product launch event where it is expected to introduce new versions of the iPhone.

Through the latter part of August, Apple stock rallied on anticipation of this event, but shares have started to fade in recent days, leaving me to wonder if traders have already started to take profits against the news or if expectations have scaled back a bit. A negative divergence has started to emerge between Apple and the Nasdaq 100.

Source: Tradingview.com

The event is scheduled for 10:00 am PDT, 1:00 pm EDT. Post-announcement trading should give a better indication of what the street is thinking. The market reaction to Apple’s news could provide a tailwind or a headwind to the NASDAQ 100 index and technology stocks in general.

Momentum may also play a role. Although the Relative Strength Index (RSI) has been climbing, indicating increasing short-term momentum, it has approached overbought territory and a negative divergence has emerged suggesting that the longer-term uptrend may be slowing.

The Bottom Line

On a breakout, initial resistance on the Nasdaq 100 may appear near the 6,012 intraday peak or a measured 6,100. Initial support in a pullback may appear near 5,980 then 5,915.