DOW over 10,000

[Sigma]

http://online.barrons.com/article/SB125547458077183509.html?mod=BOL_hpp_dc

Tune Out Dow 10,000 Maniacs
By MICHAEL KAHN

Round numbers like DJIA 10K attract media attention, but look to technical trends and breadth for clues to stocks' direction.
 
THE DOW JONES INDUSTRIAL AVERAGE TOUCHED the 10000 mark Wednesday for the first time in just over a year. Round numbers like Dow 10000 may grab the attention of the general public and the media, but to technical analysts the real question is whether such milestones will actually translate into investors' action -- either eliciting new buying or profit-taking.

I say neither.

For technical analysts, milestones such as Dow 10000, in and of themselves, have no real meaning as support or resistance if we look at the charts. As such, I do not see it as a trigger for more buying, as if the market broke out above a resistance level, or selling, which would be expected if the market fell below a support level on the charts.

Two other factors are much more interesting, technically speaking.

The first is the pending battle between the rising trendline from the March low and the falling trendline from the October 2007 peak (see Chart 1).


Chart 1




This market has confounded many, myself included, so I am not going to depend solely on the strict interpretation of lines on a chart. But this is the first time since early last year that such major trendlines are about to meet. The convergence is roughly 10300, which could be reached sometime next month. Let's use that for a framework for analysis, not a prediction.

Adding to its importance, the Dow will have retraced 50% of its bear market in this zone. Many technical analysts deem a 50% retracement move to be significant. Again, does such a recovery spur investors to take action, either buying or selling? Probably not, but let's just add it to the framework. Two trendlines and a major retracement level all converging in one place do bear watching, however.

The Standard & Poor's 500 also is closing in on a milestone at 1100. As with the Dow, there are no major peaks and troughs at this level to suggest any magic other than its round number status.

There is, however, one difference. The rising March trendline and falling October 2007 trendline are set to meet at this round number soon (see Chart 2).

Chart 2



Here, too, we have a confluence of technical levels as the S&P 500 will have retraced 50% of its bear market at 1120.

The Dow and S&P 500 do not agree in terms of how high the general market will move before it faces respective trendline showdowns. It is a major reason why neither indicator is a slam dunk for the bulls, but both do suggest the trend is still up.

Let's move on to the other factor I am watching -- market breadth. Here, too, there are no problems at this time.

The number of stocks reaching 52-week highs on the New York Stock Exchange remains healthy, and the number of stocks reaching new lows is negligible. That is what we would expect to see after seven months of gains.

What would be a problem is if the number of new highs was to shrink each day. That would tell us that the leaders in the advance have stumbled and would suggest that the market's underlying trend has changed for the worse.

Another positive breadth reading comes from the advance-decline line. This indicator sums the number of stocks rising each day and subtracts the number declining. The difference tells us if the soldiers are following the generals higher.

So far, so good. What typically happens before a rally ends is that the advance-decline indicator starts to falter. It does not have to be a steep drop, but if more stocks fall each day than rise -- even when the major indexes rise -- that could indicate a problem.

While Dow 10000 and S&P 500 1100 attract popular notice, there really is no magic here. For clues about the stock market's near-term course, watch the major trendlines and breadth, not the simplistic, round numbers that mesmerize the media.

[St. Auggie]

You have got to be kidding me.  Really? Lets just be pi$$ed about everything then.  Lets not find one sliver of happiness in these tough times.  I am not a "10000 maniac", but you know what my retirement is up, it was down, that is a GOOD thing.  Again, thank you to bridge and jeff for their POSITIVE comments.  To the rest of you debbie downers...

by the way aj, tried replying twice to your message, and would not go through. Bottom line is I am looking into it for you.

[mtraininjax]

sliver of happiness

Here is your sliver of happiness with Mr. President. Since we hit 10,000 on his watch, I would not be suprised to see him win the Noble Prize in Economics as well.   

[St. Auggie]

Nope, try again.  Financial Republican.

[mtraininjax]

Interesting article from Robert Reich, Clinton's old Sec of Labor, makes some good points:

So how can the Dow Jones Industrial Average be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.

Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed “takeover” of health care, autos, housing, energy, and finance? Their anguished cries of “socialism” are almost drowning out all their cheering over the surging Dow.

The explanation is simple. The great consumer retreat from the market is being offset by government’s advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie’s paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.

Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.

In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government’s expansion. And regardless of what you call it â€" Keynesianism, socialism, or just pragmatism â€" it’s doing wonders for business, especially big business and Wall Street. Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.

The problem is, our newly expanded government isn't doing much for average working Americans who continue to lose their jobs and whose belts continue to tighten, and who are getting almost nothing out of the rising Dow because they own few if any shares of stock. Despite the happy Dow and notwithstanding the upbeat corporate earnings, most corporations are still shedding workers and slashing payrolls. And the big banks still aren't lending to Main Street.

Trickle-down economics didn't work when the supply-siders were in charge. And it's not working now, at a time when -- despite all their cries of "socialism" -- big business and Wall Street are more politically potent than ever.

[Sigma]

Auggie, I'm happy with the market. I've been doing very well with my investments since the beginning of the year.  I'm still cautiously optimistic however, not pessimistic.  I found the article interesting as it advises to not focus on one number that really doesn't tell a whole lot in and of itself.  

Reich may have a few points. But don't they all?  He's still a political hack.  Not very objective IMHO.

[mtraininjax]

Not very objective IMHO.

When you can throw a dart at the Wall Street Journal and pick any stock and see it move up, its not called investing.

[BridgeTroll]

One out of six Americans is either unemployed or underemployed.

or...
Five out of every six Americans is gainfully employed...

Americans are now having to pay down their debts and start to save.

This is a GOOD thing... been preaching it for years.

[Sigma]

Not very objective IMHO.

When you can throw a dart at the Wall Street Journal and pick any stock and see it move up, its not called investing.

So what are you suggesting? If you are saying that is my investment strategy, then fine. However, I actually had a postive return in the 1st qtr when the market was still plunging.  

[mtraininjax]

What about Q4 of last year? Great that Q1 of 2009 turned out well for you.

[Sigma]

I lost some. But that's what a crash does.  The world saw a 1/3 decline in overall wealth.  I'm definitely not a guru who could predict it all.  But I did not rebound by throwing darts at a newspaper either.

[Sportmotor]

Its FINALLY over 10K and the banks gave out bigger bounses then last year to those MFing stock brokers! 
Nice to see isnt it?

[St. Auggie]

Thank you now to Sigma as well.   

aj, send it.

[mtraininjax]

But I did not rebound by throwing darts at a newspaper either.

OK, perhaps not, I'll give you the benefit of the doubt. But when the DOW hit the 6000 range and now up to 10000 in what, 7 months, I am sure just about every sector that was hammered in Q4, rebounded, just a wee bit. So my point was that during the last 7 months, most sectors rebounded and people saw returns to profit.

Everyone except Madoff's investors, for sad, sad reasons.

[Sigma]

And that was the points that Reich was making, I believe.  The Gov is doing its best to prop up the economy and it can't do it for long.  Make your long term bets in areas where real growth will occur WHEN the economy truly turns the corner.  Let's hope that's starting to happen now.