Posted on: Wednesday, December 10, 2003
Dow flirts with that 10,000 threshold
By Adam Shell
USA Today
 |
| Traders on the New York Stock Exchange floor watch as the Dow Jones Industrial Average flirts with the 10,000 mark in late afternoon trading, Tuesday Dec. 9, 2003. The the Dow crossed 10,000 for the first time in 18 months before retreating on profit-taking to close at 9923.42, down 41.85 points.
Associated Press |
But the celebration was short-lived. The Dow Jones industrial average couldn't hold its gains and closed below the key psychological barrier as investors again opted to treat the milestone as a reason to sell.
Ever since the blue-chip barometer first finished above 10,000 in March 1999, it has found it difficult — if not impossible — to stay above the big, round number for any length of time.
On 18 occasions, the Dow has closed above 10,000 and stayed there for one day to more than four months, only to relapse and fall below the closely watched level.
The discouraging trend resurfaced yesterday. The Dow ticked up to 10,003.12 for a brief moment in the first few minutes of trading, only to quickly fade. It came within a whisper of 10,000 in the afternoon after the Federal Reserve announced its decision to keep interest rates at 45-year lows, only to falter again.
The Dow finished down 42 points , or 0.4 percent, at 9,923.
For some reason, stock indexes have a difficult time cracking big, round numbers. The Nasdaq composite, for example, briefly crossed 2,000 on Dec. 3, for the first time since January 2002, only to reverse course immediately. The Nasdaq closed yesterday at 1,908.
Theories on why the Dow has trouble blowing past big milestones:
• It's all psychological.
In people's minds, Dow 10,000 sends a message that stock prices are really high and might be due for a fall, says Price Headley, chief analyst at BigTrends.com. As a result, "It brings out sellers."
• It's the size of the run, not the size of the number.
"In most cases, by the time the market gets to a big, round number, it is pretty overbought and is due for a rest," says Bruce Bittles, chief investment strategist at Robert W. Baird. The Dow has surged 19 percent in 2003 and 36 percent since its bear market low.
• It's a chance to get even.
Lots of investors piled into stocks about the time the Dow first hit 10,000, which means they no longer are sporting losses. "Many are enjoying their good fortune and selling," says Hank Herrmann, chief investment officer at Waddell & Reed.
Despite the short but symbolic visit above 10,000 yesterday, the fact the Dow even reached that point after sinking to a bear market low of 7286.27 on Oct. 9, 2002, is evidence of the market's improving health. "This is quite an achievement," notes Robert Klemkosky, a finance professor at Indiana University.
And while Klemkosky says breaking the 10,000 barrier again is not history, but history repeating itself, he stresses that investors have weightier matters to focus on, such as the weakening U.S. dollar, the rising budget deficit and the ever-mushrooming mutual fund scandal.
