Nasdaq Closes at 11 Year Highs – Next Stop 3,500?

The Nasdaq closed at 11 year highs on Friday, February 3rd.  The Technology weighted index closed at 2,906 – at it’s high for the day.

We had alerted readers to the Technology stocks superior performance on January 17th .  Since that date, Technology stocks have climbed higher and offered very little opportunities for Investors to buy on any dips.

I have prepared a 13 year chart of the Nasdaq.  The close on Friday at 2,905 was a technical breakout. I show this breakout with a Red Line on the 13 year Chart below.  the close at 2,905 has exceeded the previous 11 year highs found in 2007 & 2011.   Using classic stock technical analysis we have what is known as a “Breakout”.

Breakout is when the price of a stock moves through an identified level of resistance, which is usually followed by heavy volume and increased volatility.  Traders will buy the underlying stock when the price breaks through a level of resistance.    Breakouts are considered as good news for stocks since there it no overhead resistance, the stock can more easily climb in price.

From my analysis , the next resistance level for the Nasdaq is the 3,500 level  – all the way back to year 2000 – I note the next resistance level with the Black Line on the chart below that is another 22% higher from Fridays close.

 

However, short term the Nasdaq is overbought.  The Technology weighted Index is up almost 15% since December 19, 2011.  That is one of the better six week performances in Years!   Below is a six Month Chart that Illustrates the strong performance over the prior six weeks.

 

 

For those who have missed this sharp rise in technology shares,  it would be prudent to wait for a correction or at least side sideways consolidation action before establishing or adding to technology shares for their portfolios.

Now the question is the Nasdaq and technology shares going higher or lower over the next 3-4 months?  To answer that question we must first look at the engine that drives the Nasdaq – and that engine is Apple Computer (Ticker AAPL).  Apple is the highest weighted stock in the Nasdaq.  Therefore, the other companies listed on the Nasdaq tend to follow Apple in the same direction both higher and lower.

Below is a six Month chart of AAPL.

 

 

Apple recently reported earnings far ahead of what analysts had expected.  You can see the Gap up to the $450’s level for Apple from the earnings report.  This was another breakout to all time highs and I note the technical breakout level with the Black Line on this six month chart.

Apple product lineup for 2012 is expected to be robust – a New Ipad 3 that is expected to have Siri – A new Iphone 5 that is expected to run on 4G networks – a complete refreshment of their entire Macbook line of notebooks and perhaps even an Apple TV?  These fundamentals are in alignment with the Technical indicators and point more probably to higher prices in the future.  And as I stated – where Apple goes, so goes the rest of the Technology weighted Nasdaq Index.

The Outlook for Higher Prices have not looked more promising in Years – Here is why.

  1. Many stocks and sectors have broken out to multi-year highs.
  2. Major Technology Companies such as Apple, Intel, IBM have reported record earnings and provided strong forward guidance.
  3. Stocks are trading at relative cheap prices (price/earnings ratio’s) not seen in years.
  4. Interest rates have never been lower.
  5. Bonds yields have never been lower – making Bonds very unattractive as compared to equities today.

Recent economic news flow has been very encouraging across the board including:

  • Purchasing Managers Index (PMI) Shows the economy expanding for the past six months.
  • January 2012 Auto Sales were the highest in almost four years.
  • Unemployment News finally showing relief for Jobless – Initial Unemployment gains fell to 8.3% – also Fridays report of 244,000 new jobs added was the highest in two years – See My Post from January 19, 2012 on this topic.
  • Housing news is finally getting better – new housing permits have finally shown growth after almost 5 years of decline – do note that this improvement in housing is from very low levels – but the Impact of “good” housing news for the first time in years will be helpful for equities.

If you would have asked me two months ago what is the possibility that the Nasdaq could rise to 3,500 sometime  in 2012,  I would have responded maybe a 5% probability of this happening at best.

However, now looking at the technical indicators for the markets and also taking into consideration the recent fundamental results for both individual companies and the economy as of a whole,  I think that the Nasdaq rising to 3,500 sometime in 2012 has become a real possibility.

 

 

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