NEW YORK: Although the Dow Jones Industrial Average has closed above 10,000 points 11 times so far this month, it’s likely to be years before this oldest and most widely watched US market measure stays above the mark without falling back.
In fact, the Dow could rise and fall from the 10,000 level a number of times before it enters a sustained upward rally, based on trading patterns seen when the 108-year-old average first crossed the 100 mark and later surpassed 1,000.
“If there is a possible correlation, we can expect essentially a trading range-bound progression that could indeed last up to 20 years, or towards the years 2015-20,” said Alan Shaw, a technical analyst at Smith Barney, in a recent study.
Checking the Dow's history, Shaw found that the average first closed above what investors then must have viewed as the “psychologically significant” 100 level in 1906. But though it flirted with that dizzying height several times in subsequent years, it “proved a market ceiling until 1924,” Shaw told clients.
During those 18 years before the average broke through 100 with conviction, Smith Barney counted five cyclical bear markets, a decline of 20% or more, and four cyclical bull markets, until the fourth matured into the bull trend of the 1920s.
The pattern was repeated decades later when the 1,000-level became another tough sell to investors. – Reuters
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