Dow 10K: What Does It Mean?
After spending a little over a year a full digit shy of what investors might consider "normal," everyone was once again all excited over the Dow Jones Industrial Average crossing back above the 10,000 level. But since it wasn't the first time the best known stock market index managed to bust through the ever-so popular big, round number (it was actually something like the 50th such crossing) a lot of people are asking what it means – if anything.
After noodling on the subject for a while, we've come up with a few thoughts on what the move back into five-digit land might mean. So, without further ado, let's get to it.
The first thing that comes to mind is that this time around, there was a lot less celebration that the Dow managed to push above 10,000. There were far fewer party hats (although Dow 10,000 2.0 hats are available on the NYSE/Euronext website), only a handful of noisemakers, and hardly any champagne corks could be heard popping at the close. Perhaps the fact that it has been ten years and six months since the first big Dow 10K party had something to do with it. But in any event, the fact that the Dow has now moved back over the seemingly magical 10,000 mark really means that the index has gone absolutely nowhere since March 29, 1999. Ouch.
The fact that the market hasn’t gained any ground in over a decade means, very simply, that we're in the throes of a secular bear market. And while we hate to rain on the big Dow 10K parade, it means that there might be more sideways action ahead as the last secular bear lasted 16 years and the previous secular bull stuck around for 18.
Next, despite the fact that the Dow now sports a 10-handle, the current situation means that buy-and-hold is still dead and a strategy of buy-and-sell makes infinitely more sense.
From a shorter-term perspective, the move beyond 10,000 means that traders are discounting better days ahead for both the economy and corporate earnings. And it means that the public is breathing a big sigh of relief. As Art Hogan of Jefferies & Co. put it, "It's almost like an announcement that the bear market is over... things must be getting better because the Dow is over 10,000."
The move back up over 10K means that the current bull move has produced gains of +52.98% on the DJIA from its March 9th low, +61.41% for the S&P 500, and an eye popping +71.22% on the NASDAQ Composite index.
Today's close back above 10,000 means that the Dow now needs to gain 4,148.67 points from here in order to return to the old high set on October 9, 2007. And for those of you keeping score at home, that means the bulls will have to run another 41.42% in order to get back to breakeven from the bear market's destruction.
The most recent run for the roses means that traders are starting to see some improvement in the economy. We're basically in the process of moving from "the worst is over," through “things are less bad,” and on to "hey, things are actually improving." Intel's earnings report was a pretty good example of this as the company’s stellar EPS numbers weren't derived only from cost cutting or from inventory replenishment, but also from a "strengthening in PC demand."
Finally, the move over Dow 10,000 means that the current bull market is probably closer to the end than the beginning. Remember, according to Ned Davis Research, the average cyclical bull market that occurs within the context of a secular bear market sees gains of 65.7% and lasts about a year. So, while there is a good chance that this bull may come in above average, the clock is definitely ticking.
David D. MoenningFounder www.TopStockPortfolios.com
Direct: 303-670-9761
email: DaveM@TopStockPortfolios.com
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