DOW 11,000 ? – Friday, April 9, 2010
Recently market followers have been fixated on Dow 11,000 because many believe that as a psychological level it is significant. We have come within 12 or 13 points of 11,000 three times this week already, suggesting that the iconic stock index will cross that round number any day now. However, a strong day today, Friday, April 9 saw the DOW gain 70 points but still failed to break through 11,000 and closed at 10,997. The DOW was last trading at 11,000 in late September, 2008 and this is the highest weekly DOW close since that date.
There are respected market analysts that believe that seriously identifying these round number index levels as important will result in impeding investors’ judgment and could cause bad trading decisions based on irrelevant data points.
Fixating on a key level, such as DOW 11,000 can also be a sign that a hot market may be ready to cool, says Woody Dorsey, president of Market Semiotics, which specializes in the psychology of trading.
He believes that when the masses become acutely aware of a key price level, they view it as being important and assume it clearly indicates where the market is going,. This can result in herd mentality. “If everyone has a pretty good idea of where the Dow is supposed to go, it’s almost like a sure thing in their heads,” Dorsey says.
While most of the market participants are predicting a run through 11,000 it is just as possible the market will do the opposite, especially since the bull market enters its 14th month and some Wall Street pros warn of a coming pullback.
As you can see by the attached chart the DOW has run up from 6,516 last March 9, 2009 [GREEN line] to presently threatening a break through of 11,000. That is an almost 70% rise in only 13 months.
But if, in fact, the “trend is your friend” and the market’s current bullish momentum succeeds in crashing through the 11,000 level, [lower RED line] then a further meteoric run to the 12,000 level [upper RED line] may just be possible.
