Posted by: Ben Levisohn on October 14, 2009
The Dow Jones Industrial average closed above 10,000 today for the first time since October 2008. After having watched the blue-chip benchmark cross the magical five-digit figure numerous times in both directions over the past 10 years, the predominant reaction from market watchers has been a collective shrug.
Barron’s urged its readers to “Tune Out Dow 10,000 Maniacs.” The Wall Street Journal spent its time focusing on an impending Standard & Poor’s 500-stock index milestone. Even BusinessWeek has asked if Dow 10,000 is just another number.
They’re right to be skeptical. Too much is made of the psychological impact of round numbers, whether its Dow 10,000 or S&P 500 1100. Technical analysts rarely focus on the Dow — with only 30 stocks, it’s too narrow to be of much use. And when they do, they focus on trends (the Barron’s article focuses on when long-term and short-term trends in the Dow clash) or levels of support and resistance.
But to dismiss Dow 10,000 outright is mistake, says Blaze Tankersley, senior managing director at BayCrest Partners, an independent brokerage. He notes that when the Dow has traded near 10,000, it’s stayed there for months, sometimes years. Starting in 1999, the Dow spent nearly three years stuck in a range with 10,000 as its base, before crashing through in 2001. On the way back up, it traded around 10,000 for around two years before trading up to 14,000.
“Anyone who thinks this is irrelevant is likely a fool,” says Tankersley. “[Dow 10,000] magnetizes prices towards it for many months if not years to come once [it’s breached].”