Updated: 11:57 AM EST
Dow 10,000 May Be Ceiling for Years, History Shows
By Nick Olivari, Reuters
NEW YORK (Dec. 29) - Although the Dow has closed above 10,000 11 times so far this month, it's likely to be years before the oldest and most widely watched U.S. market measure stays over the mark without falling back.
In fact, the average could rise and fall from the 10,000 level a number of times before it enters a sustained upward rally, based on trading patterns seen when the 108-year-old Dow Jones industrial average first crossed the 100 mark and later surpassed 1,000.
"If there is a possible correlation, we can expect essentially a trading-range bound progression that could indeed last up to 20 years, or towards the years 2015-20," said Alan Shaw, a technical analyst at Smith Barney, in a recent study.
Checking Dow history, Shaw found the average first closed above what investors then must have viewed as the 'psychologically significant' 100 level in 1906.
But though it flirted with that dizzying height several times in subsequent years, it "proved a market ceiling until 1924," Shaw told clients.
During those 18 years before the average broke through 100 with conviction, Smith Barney counted five cyclical bear markets, a decline of 20 percent of more, and four cyclical bull markets, until the fourth matured into the bull trend of the 1920s.
HISTORY REPEATS
The pattern was repeated decades later when the 1,000 level became another tough sell to investors.
The average came within points of that milestone in February 1966 and again in December 1968, but only broke through that milestone in January 1973, according to Shaw.
Unfortunately, that marked the high water level until October 1982 when it closed above 1,000 and then rose above that level consistently for eight days, developing into the greatest bull market in U.S. history.
Like the 100 mark though, the 1,000 point level had been an upside barrier for 17 years, Shaw said, and investors endured another five bear markets and four bull markets.
Fast forward to 2003, and investors have seen just one bear market between the time the Dow first closed above 10,000 in 1999 and its return to those dizzying heights in recent weeks. While investors are confident that the most recent bear market has ended and the positive economic data will continue through 2004, they also believe much of the good news has already been priced in.
That's not to say that anyone is predicting a bear market anytime soon, but investors know that its going to be a hard slog to break above the Dow's closing high of 11,722.98 on Jan. 14, 2000.
12/29/03 10:28 ET
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