Mailbag Response

The Question/Comment...

"I've noticed that the Dow is a couple of good rallying days away from 10,000 and the S&P even nearer to 1075 - are these just numbers, or would there be a greater significance to reaching these milestones?"

TSM Thoughts/Answer...

I tend to look primarily at the S&P 500 for a read on the market ... its a broader index that covers more companies throughout all sectors and is generally considered the more reliable/accurate of the indices, despite all the headline pub that the Dow constantly gets.

That being said, while there is some resistence at the 1075 level, I do not see this level as being a significant breakout level from a technical standpoint. If you look back to the 2001, the market really had a lack of resistence barriers between 1025 and 1200. So, when the market was on its way down, it had trouble breaking below 1200 and would often times go to 1200 or 1170 and then pop back up and rally. When the market was on its way up, it didn't face much upward resistence until hitting the 1200 market, whereby it would often times hit a ceiling and then retrace back to 1150 or so before making another rally/run at going through 1200. So - my answer is that from a technical standpoint (as opposed to fundamentals), the market would be likely to drift higher all the way up to 1200 without much resistence.

Which brings up a good ancillary thought -- if the market is going to go lower its going to have to be driven by fundamentals. Thus, if the market does correct lower it would indicate that the underlying nature of the current rally was false - was built on an overly weak dollar, overly optimistic view of future consumer spending, and overly propped up housing and banking results via government support. If the market doesn't move lower, then it would tend to indicate that the rally was real. The doom-sayers were over-speaking. That the economy has stabilized, inflation fears are overblown at this point, the Federal Reserve policy is spot on, and (most importantly) we'll be seeing a "V" shaped recovery in the economy and hiring, as opposed to the stagnant "L," "U" or (my favorite) square-root shaped recovery.