The Nasdaq Composite Index has entered a bull market and stocks may continue to rally through the end of March, according to Louise Yamada, who said in December that equity charts were signaling further losses.
“The Nasdaq has initiated a new structural bull market,” Yamada, managing director of Louise Yamada Technical Research Advisors LLC in New York, said in a radio interview today on “Bloomberg on the Economy” with Sara Eisen. “We’ve entered the year with short-term positive signals with the possibility that we could see a rally through the first quarter.”
Yamada, who worked as a technical analyst at Salomon Smith Barney, said in a December report that investors may be better off selling “weaker stocks into strength” after a 14 percent gain in the Standard & Poor’s 500 Index since October. She said in November that evidence the market’s advance will continue hadn’t materialized and the year-end rally may falter. The benchmark measure for U.S. equities has gained 7.3 percent this year for the best annual start since 1991.
The Nasdaq Composite reached 2,918.26 today, its strongest intraday level since December 2000. The gauge peaked at a six-year closing high of 2,859.12 in 2007 before plunging 56 percent through March 2009. The Nasdaq surpassed its 2007 level on eight days last year, fell below it in July, only to surpass 2,859.12 again on Feb. 2. The rebound still leaves the measure 42 percent below its record high of 5,048.62 in March 2000.
“One thing that’s extremely intriguing to us is that the Nasdaq has not only gone through the 2011 peak but has also now exceeded the 2007 peak for the second time,” Yamada said. “The bigger the drop, the longer the need for repair. Well, we have that incredible 2000 drop and now you’ve had eight years of repair.”
Investors should buy the PowerShares QQQ Trust to profit from the Nasdaq’s likely rally, as well as gains from Apple Inc., she said. Apple, the world’s largest company by market value, makes up 16 percent of the Nasdaq-100 Index, which serves as the basis for the PowerShares fund.
The Nasdaq Composite Index, which gets 53 percent of its value from technology companies, has risen 12 percent in 2012 as S&P 500 computer and software makers beat fourth-quarter earnings estimates by 12 percent, more than any other industry. The Nasdaq is up 24 percent since its 2011 low on Oct. 3.
The Federal Reserve’s plans to keep interest rates low through at least late 2014 will probably help equities, according to Yamada. The Dow Jones Industrial Average, which has also exceeded its 2011 high, has reversed the long-term sell signal it had last year, while the S&P 500 and the Nasdaq Composite are close, she said. Most of the global equity indexes still hold long-term sell signals, Yamada said.
The MSCI All-Country World Index of shares in 45 nations has surged 20 percent since Oct. 4, ending a bear market that began in May.
“The Fed came in guaranteeing liquidity and we know whenever that happens we’ve seen some follow-through on the equity advance,” Yamada said. “The question here is have we started a new cyclical advance, which is the case perhaps for many of the global markets, or do we have an aging bull?”