Stocks opened higher yesterday, but reversed down at noon when the Dow Industrials were ahead by 80 points and closed lower by 62 points (0.51%). Most of the gains vanished in a sea of sellers when it became apparent that Congress was still too far apart on the debt ceiling negotiations to reach a decision before the weekend, and rumors circulated that the United States would lose its AAA credit rating regardless of the outcome of the debt ceiling issue. And so the focus again shifted to politics rather than better-than-expected earnings from a number of companies, better pending home sales numbers and a drop in continuing unemployment claims.

There has been a lot of talk lately about how miserably the Nasdaq has reacted to the current crisis. But while the other indices registered losses yesterday, the Nasdaq gained, and a long-term study of its chart contradicts the negative comments. Since there is a lot of data on this chart, let’s take one piece at a time.

First, the overall support and resistance zones are outlined with two horizontal heavy black dash lines showing resistance at the top at 2,860 to 2,840 and support at the bottom at 2,600 to 2,640. These zones represent a trading range that been with us since late last year.

At the end of June, the index made a stab at a new high breaking through its downward sloping resistance line (red dash), as well as its 50-day moving average (solid blue line). But the attempt to make a new high failed and now both lines, formerly resistance lines, become support lines — and thus far they have held against impressive selling pressure. The next support is at the 200-day moving average line (red dash) now at 2,704.

Momentum is shown with vertical red bars at the bottom of the chart and indicates that the Nasdaq has just moved into the “oversold zone.” The likelihood is that momentum will become more oversold before the trend turns up.

Conclusion: The Nasdaq consists of more volatile stocks than are represented in the Dow industrials or the S&P 500, and has held up well in an emotionally charged market. But further selling pressure is likely before the debt issue is settled, and so it is likely that both the support at the 200-day moving average and the broad support zone at 2,600 to 2,640 could be tested.

However, the depth of this support is so broad that the chances are very high that the Nasdaq will hold against a barrage of sellers. Smart buyers should cull their lists of Nasdaq’s high-quality technology and financial stocks for undervalued situations that could become bargains by Aug. 2.

Tomorrow I’ll list some of my favorite Nasdaq bargains. For a sneak peak, see the Trade of the Day.