Will Dow Close Above 10,000?
By Pierre Belec
NEW YORK (Reuters) - The $64,000 question is: Will the Dow Jones industrial average close above the magic 10,000 level? The $1 answer is: Yes. Maybe. Some day.
After a moonshot climb for 4-1/2 years, the powerful Dow is showing signs of fatigue, which is troubling many Wall Streeters.
The long rally has stalled, with the famously volatile Dow failing on three different days this month to cross 10,000 at the finish line.
Some experts view the struggle as simply a generational barrier. But others say it's something more serious. They sense that many investors have developed a bad case of vertigo.
The betting is the market may have come up against a ceiling, which would mean that a major market top could be forming for the Dow.
''The Dow's failure to impressively break above 10,000 will only confirm that the real top in the bull market occurred in April, 1998, when a huge percentage of all U.S.-based stocks made their highs,'' said Don Hays, chief investment strategist for Wheat First Union in Richmond, Va.
''As the champagne corks were being popped for the 10,000 celebration, it was absolutely mind-boggling that the cumulative advance/decline line was making a new low,'' he said.
This week again the ratio of stocks making new lows outpaced those that set new highs.
More importantly, Hays said, the median loss of all stocks has been 22 percent since the market carved out a top last April. Over the past year, the stock market has been driven higher by a consistently narrow number of stocks in the headline grabbing Dow and Standard & Poor's indexes.
The Dow's failure to hold 10,000 is sending muddled messages to investors. Theories abound as to the reasons why people are going gray waiting for the Dow to punch through that epic level.
The market-making computer-guided traders may be unloading truck loads of stocks when the Dow reaches 10,000, according to some experts.
Others say the market is displaying its usual cautiousness as it reaches a bigger milestone.
It took the Dow eight weeks to sprint from 4,000 to 5,000 points, four weeks to hit 6,000 and 13 weeks for 7,000; but the lag widened to nearly 25 weeks each before it snapped the 8,000 and 9,000 marks.
Will the Dow be able to close above 10,000?
''We hope not,'' Hays said. ''The more the excess on the upside, the more damage it will have to sustain to undo the exaggeration.''
History shows that the Dow has had a tougher time in making more headway after poking through major barriers such as 100 and 1,000.
''Each of those previous parallels created a very serious obstacle to further escalation of the rush to buy tulip bulbs,'' Hays said.
Why the big fuss about Dow 10,000?
''It's more than just a round number for the market,'' said John Geraghty at North American Equity Services, a consulting firm. ''It's become a psychologically important level because enough people want to believe in it.
''Right now, 10,000 Dow is a number in the sky that a lot of investors are aspiring to,'' he said.
Is there life for the Dow after 10,000?
''After we reach that magic level, the market will enter into a new phase and many investors will start to say that the market has finally reached its objective and 'It's enough for me,' and start to take profits and step aside for a while,'' Geraghty said.
The concern is that the longer it takes for the Dow to climb past 10,000, the greater the risk that the market could lock into a correction.
But the big question is what will happen to the psyche of investors if people start to view a close above 10,000 as no longer a goal but rather a tough obstacle.
Indeed, some investors are having second thoughts about chasing the market any higher.
The major market indices have been flying into the record books this year because of good corporate earnings, particularly by technology companies. But the earnings landscape is changing.
Analysts doubt the technology giants, whose fast earnings growth has put the market in over-drive, will be able to deliver even greater earnings.
The sector has been propelled by accelerated demand for technology to deal with the Year 2000 computer problem. The worry is that this monsoon wave of revenues may be about to peak and the tech companies will need something else to energize their results after the pantries in Y2K bomb shelters get fully stocked.
The stocks of tech powerhouses such as International Business Machines Corp., Intel Corp., Compaq Computer and Dell Computer have already fallen sharply on the weakening earnings outlook.
Many investors are now skeptical about the durability of this bull market. When they are in that frame of mind, it's usually a sign that people are starting to think that this market may not be too big to fall after all.
-- last week's Dow
For the week, the Dow Jones industrial average was down 81.31 points at 9,822.24. The Nasdaq Composite index fell 2.32 points to 2,419.17. The Standard & Poor's 500 index was down 16.24 at 1,282.80.
(Questions or comments can be addressed to Pierre.Belec(at)Reuters.Com)
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