Indicators Flash Green for Nasdaq Rally
By Per Jebsen
NEW YORK (Reuters) - The Nasdaq Composite Index (^IXIC - news), down by two-fifths since Sept. 1, is likely to rebound soon because several indicators are flashing green, technical analysts said on Tuesday.
These analysts, who focus on price movements rather than earnings or economic data for clues to the market's direction, expect a rally that would take the index to 3000 by spring -- up 23 percent from its current levels.
Among signs technology investors may get some relief from the losses they suffered last year: Fewer Nasdaq shares are hitting new lows and there's a huge gap between the technology-laden index's current and average level over the last 200 days.
The Nasdaq has fallen by half since its March record high of 5,048.62 after investors grew leery of technology companies with sky-high price-earnings multiples and the Internet turned from boom to bust. It rose 48.86, or 2 percent, to 2,444.78 in morning activity on Tuesday.
The Nasdaq ``is in a pretty deep oversold situation, and thus would be due a knee-jerk bounce soon,'' said Gregory Nie, a technical analyst with First Union Securities Inc. in Chicago. The Nasdaq is trading about 31 percent below its 200-day moving average of 3,564, Nie said. It has fallen more than 20 percent below the 200-day average on only three prior occasions, and each such fall preceded a rally. The index could rise to 2,700 in the next several weeks and has ``rebound potential of over 3,000'' by or before June, he said.
Another bullish signal is that the number of declining Nasdaq stocks and the number of Nasdaq stocks hitting new lows are both fewer than two weeks ago.
The Nasdaq decline ``is narrowing, fewer stocks are pulling the market down,'' said Robert Dickey, an analyst with Dain Rauscher in Minneapolis. ``The Nasdaq is in the process of bottoming,'' he said.
Jay Lefkowicz of Morgan Wilshire Securities switched to Nasdaq bull from bear toward the end of December in part because the Nasdaq was hitting new lows even as a common technical indicator, the MACD, was not. The MACD, or moving average convergence divergence, measures the direction and momentum of stocks, Lefkowicz said.
A rally is likely to occur soon provided two conditions are met, the Westbury, N.Y.-based technical analyst said. First, the Nasdaq must rise above its average level in the prior 21-day and 50-day periods.
Second, the MACD, which closed at minus 119 yesterday, must rise above zero. The Nasdaq's MACD has ranged between plus 205 and minus 278 over the last 12 months, falling -- and staying -- below zero from Sept. 14 on, Lefkowicz said.
Some technical analysts remain skeptical of the Nasdaq's seemingly bright prospects.
Individual investors continue to have a very high proportion of their wealth in the stock market even though stocks are overvalued compared with historic norms, said Ricky Harrington, a senior vice president with Wachovia Securities in Charlotte, N.C.
``2001 is going to be a bear market year,'' Harrington said.
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