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Yamada: The market has seen a ‘valid breakout’ that will lead to a new leg higher

If you thought stocks were soaring sky high, you might want to brace yourselves for another leg up and more record levels ahead.

Tuesday on CNBC's "Futures Now," Louise Yamada, managing director at Louise Yamada Technical Research Advisors, said that history shows that the last months of 2016 indicate that the markets will continue their rally in 2017.

"Even though the Dow, the S&P and Nasdaq didn't suffer 20 percent declines in [late 2015 and early 2016], the other markets [like the Russell 2000 and Nasdaq 400] were down 20 percent or more," she explained. "It's very much like the stealth bear market that we had in 1994 and 1995 where the small and mid-cap stocks got hammered and the large caps only pulled back 9 percent."

The assessment leads Yamada to believe that the markets had been in an "interim cyclical bear market" for two years, but that the recent stock rally is a "valid breakout into a new leg up." This even as Yamada believes large-cap indexes like the Dow could see a pullback before another rally of "either one-third to one-half," which she describes as a "general rule of thumb" in a note released on Dec. 30.

Yamada believes that the S&P 500 could hit 2,400 by the end of 2017, and the Dow could hit 22,000 by that time as well. This means that Yamada sees a rally of about 6 percent and 10 percent for the large-cap indexes, respectively.


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