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Last week I wrote that I expected the Nasdaq to rebound from a few days of corrective action and resume its upward trend. That is exactly what occurred. In fact, this week the index broke through resistance and reached a new multi-year high. This is a strong signal of confirmation of the bull market that began in mid-summer. All of the major indices are now reaching new levels. Some, like the Dow, are at all-time highs.

The chart below shows the picture. This is essentially the same chart I used last week to show why I expected the rally to resume. The gold line is a 50-day moving average of the Nasdaq and you can see that the index never even corrected to that level. The green line is resistance from the year’s prior highs in April. After failing to close above that mark in October, the Nasdaq has now surpassed it. The bottom portion of the chart is a Moving Average Convergence Divergence (MACD). It shows an index gaining momentum after a brief downturn.

Virtually every market technical indicator is now strongly positive. This is the market equivalent of a sunny, 75 degree, windless spring day for golfers. For investors, this is probably the best situation that has existed since the early part of 2003 after which stocks staged an 11-month advance. In other words, if you are an investor, this is a time when you should be fully invested. Upward momentum is strong, meaning that overall market risk is low.

There has been one change in the markets that is worth noting. After outperforming the U.S. market for much of the past two years, international funds have lagged the U.S. for much of this recent rally. But that situation has shifted and over the past 60 days perhaps the strongest international market sector has been Latin America. As an example, during that time iShares MSCI - Mexico Index Fund (EWW) has gained nearly 17% compared to about 10% for the Nasdaq. Another fund we have mentioned often in past issues, iShares S&P Latin America 40 Index Fund (ILF), is up about 15% for the past two months. That chart below shows how these two funds have fared against the Nasdaq so far this year. ILF is the black line, EWW the blue, and the gold line is the Nasdaq.

The strongest U.S, market sector right now is biotech. The Amex Biotechnology 1Trust (FBT) is up more than 17% over the past eight weeks. Dyn Biotech & Genome PowerShare (PBE) has gained more than 13% in the same time.

Today the market pulled back slightly as traders and investors contemplated the impact of Democrats controlling Congress. But the reaction to the election results has really been quite mild–no doubt muted by the powerful technical underpinnings of this market.

F.S.