Some strategists say sell-off might be in the cards.
NEW YORK (MarketWatch) -- With the Dow Jones Industrial Average fast approaching the 10,000 mark, more than a year after plummeting through it near the height of the financial crisis, market strategists believe passing the magic level convincingly might prove a sticky affair.
The blue-chip average holds a special place for the public. Reaching that level might therefore help soothe some of the trauma experienced when investors saw the Dow industrials sink more than 500 points on Oct. 7, 2008 -- the last day it traded above the 10,000 level.
"10,000 is such a big number," said Darin Newsom, senior analyst at Telvent DTN. "Reaching it the first time was a big deal and falling through it was a big deal."
But cheery media headlines and sighs of relief that 401ks have regained some ground might not be enough for the market, at least in the near term.
"For the market right now, it brings up the question of whether we're running out of gas," Newsom said. "Are we sizing up for a possible sell-off? These are some of the ramifications as we test this level."
Newsom thinks the Dow might be making a "last gasp" run at 10,000 for this year, as the market tends to reach highs in October. And reaching the number will raise questions as to what justifies further gains after the Dow's more-than-50% rally from its 2009 lows reached in March.
Overhead supply
"Being back closer to where we were before the disaster might signal it's time to get more cautious," said Marc Pado, market strategist at Cantor Fitzgerald.
A number of analysts, including Pado, believe the market is likely to run into so-called overhead supply below and above Dow 10,000. Overhead supply consists of a pool of willing sellers who had bought the market just before it went down and are keen to break even.
"The higher we go from here, the more supply we have," the analyst said.
The market has already shown signs of hesitations whenever the Dow has traded above 9,900. On Tuesday, the Dow industrials fell back 14.74 points, or 0.2%, to 9,871.06. The S&P 500 Index dropped 3 points, or 0.3%, at 1,073.18, while the Nasdaq Composite Index rose 0.75 points to 2,139.89.
Should the Dow break through 10,000 and hold above the mark against selling efforts, the level could then become support. Cantor's Pado still thinks the Dow will reach his price target of 10,500 before the end of the year. But not before a 7-10% sell-off in the market in the near term.
"We can continue to push higher but if companies reporting earnings only meet expectations, people will be disappointed and the 10,000 level will be the perfect excuse [for a sell-off]," he said.
Psychological factor
Retail investors have remained largely cautious since the March rally and Dow 10,000 might eventually do some work at restoring a certain level of confidence in the market, said Donald Selkin, chief market strategist at National Securities.
"Whenever it's a round number like that it's psychological," Selkin said. "A decisive break above that level, which would then be acting as a support on the downside, would in turn help investor psychology."
Selkin, however, also thinks that the market will first sell off upon reaching the level.
"We've been rallying into earnings and have had a relentless run to higher levels," he said. "We're very overbought."
NEW YORK (MarketWatch) -- With the Dow Jones Industrial Average fast approaching the 10,000 mark, more than a year after plummeting through it near the height of the financial crisis, market strategists believe passing the magic level convincingly might prove a sticky affair.
The blue-chip average holds a special place for the public. Reaching that level might therefore help soothe some of the trauma experienced when investors saw the Dow industrials sink more than 500 points on Oct. 7, 2008 -- the last day it traded above the 10,000 level.
"10,000 is such a big number," said Darin Newsom, senior analyst at Telvent DTN. "Reaching it the first time was a big deal and falling through it was a big deal."But cheery media headlines and sighs of relief that 401ks have regained some ground might not be enough for the market, at least in the near term.
"For the market right now, it brings up the question of whether we're running out of gas," Newsom said. "Are we sizing up for a possible sell-off? These are some of the ramifications as we test this level."
Newsom thinks the Dow might be making a "last gasp" run at 10,000 for this year, as the market tends to reach highs in October. And reaching the number will raise questions as to what justifies further gains after the Dow's more-than-50% rally from its 2009 lows reached in March.
Overhead supply
"Being back closer to where we were before the disaster might signal it's time to get more cautious," said Marc Pado, market strategist at Cantor Fitzgerald.
A number of analysts, including Pado, believe the market is likely to run into so-called overhead supply below and above Dow 10,000. Overhead supply consists of a pool of willing sellers who had bought the market just before it went down and are keen to break even.
"The higher we go from here, the more supply we have," the analyst said.
The market has already shown signs of hesitations whenever the Dow has traded above 9,900. On Tuesday, the Dow industrials fell back 14.74 points, or 0.2%, to 9,871.06. The S&P 500 Index dropped 3 points, or 0.3%, at 1,073.18, while the Nasdaq Composite Index rose 0.75 points to 2,139.89.
Should the Dow break through 10,000 and hold above the mark against selling efforts, the level could then become support. Cantor's Pado still thinks the Dow will reach his price target of 10,500 before the end of the year. But not before a 7-10% sell-off in the market in the near term.
"We can continue to push higher but if companies reporting earnings only meet expectations, people will be disappointed and the 10,000 level will be the perfect excuse [for a sell-off]," he said.
Psychological factor
Retail investors have remained largely cautious since the March rally and Dow 10,000 might eventually do some work at restoring a certain level of confidence in the market, said Donald Selkin, chief market strategist at National Securities.
"Whenever it's a round number like that it's psychological," Selkin said. "A decisive break above that level, which would then be acting as a support on the downside, would in turn help investor psychology."
Selkin, however, also thinks that the market will first sell off upon reaching the level.
"We've been rallying into earnings and have had a relentless run to higher levels," he said. "We're very overbought."
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