Dow 11,000: What Would It Mean? The Dow Jones Industrial Average appears to be just one or two bullish sessions away from crossing 11,000. Although it's a benchmark that carries less symbolic weight than the milepost the Dow crossed last October, analysts say investors are right to pay it some attention.
Let's take a closer look at 11,000. From a technical perspective, the number isn't a particularly significant point for the Dow, says Ryan Detrick, the senior technical strategist at Schaeffer's Investment Research. In fact, in at least one way, the real party was over Tuesday. That's when the Dow crossed 10,800, a technical resistance point (or a mathematically derived indicator of a true market hurdle), says Anu Sharma, the managing director of Nasdaq's Market Intelligence Desk at Nasdaq. But that doesn't mean 11,000 isn't important. Because individual investors still appear worried that the market will deliver "another face-ripping drop like we saw in September 2008," crossing the 11,000 mark would be important psychologically, Detrick says. A rally above 11,000 could become a self-fulfilling prophecy if it encourages more retail investors to move money back into the market, he says. The timing of hitting 11,000 is also significant. Crossing 11,000 would bring the Dow back to a level traders haven't seen since September 2008. That may feel like a long time ago, but it represents a remarkably short period for a thousand-point gain. The speed of that recovery is psychologically important, Sharma says. "People were saying it was going to take years to come back and we've done it essentially in exactly one year," he says. Of course, that blazing speed brings up a larger question: What's fueling this rally? "A lot of traders right now are scratching their heads, saying, `Why are we back at this point?'" Sharma says. So far, analysts say the bullish run has been less about real growth than traders' belief that a deep recession will be followed by a strong recovery, as has historically been the case. But "there's no law that says that has to happen," says Rodney Johnson, the president of HS Dent. The fundamentals on the economy simply aren't strong enough to support the current rally, Johnson says. That could mean that a trip above 11,000 might be short-lived. "How far can this rubber band get stretched between what the economy's doing and what the market is doing before one of them has to capitulate?" Johnson says. "And the economy doesn't capitulate." In fact, if the Dow does strike 11,000, a pullback could be coming as soon as the new quarter begins, Sharma says. The current rally may be just a result of fund managers looking to boost gains as high as possible for the end of the quarter, he says. Investors looking for clues can watch the bond market for signs of where the Dow is headed. If the yield on a 10-year goes above 4%, that could signal another sharp drop for equities, says John Lekas, the manager of the Leader Short Term Bond Fund. "I think you could flip a coin," he says. The current rally is momentum-driven, "and maybe the fundamentals catch up, or maybe they go the other way." In the near term, some analysts say to expect only more waffling. The market is more likely to pull back by about 5% than it is to climb above 11,000, says Burt White, the chief investment officer of LPL Financial. "As we get closer and closer to that 11,000 mark, it's kind of like as you get closer and closer to the end zone each yard is harder and harder to get."
