Dow surfaces above 10,000: but can it remain above it?

By Money Matters Editors

Since the Dow is above 10,000 let’s briefly re-examine the world's most closely monitored stock market index, this time from a technical standpoint.

If the Dow can close above the psychologically-significant 10,000 mark for three straight sessions, that would be a bullish sign. Thursday was the second straight day, so Friday (obviously) looms large. Given that Fridays during sluggish-to-recessionary economic times are usually down days for the Dow, Friday represents a formidable hurdle for Dow 10,000.


Other relevant indicators: the Dow is substantially above the 50-day moving average (MA) – the second toughest average to break in trading – which is at 9,577. That’s a bullish sign. The Dow is also about 1,500 points above the 200-day MA – the toughest average to break in trading, another bullish sign.

Also, earlier this year, in July, the Dow recorded a golden cross – which is when the 50-day MA average crosses above the 200-day MA – another bullish sign.

In normal times, an argument could be made that the Dow has decent support at 9,600, then again at/near 9,200. But these are not normal times, but times when unexpected announcements – traders call them ‘objective events’ – change the trading and investing landscape. So unless the 'Saturday night surprises' (bank losses and write-offs) are done, one can not say the Dow has decent support, anywhere: this market has demonstrated that it can shed 300, 500 even 700 points very quickly, on unexpected bad news.

The bottom line for the Dow? The Dow assumes a recovering U.S. economy in the quarters ahead. Hence, the Dow’s performance will be determined by the Fortune 500’s Q3 earnings performance and, equally significant, by the outlook for Q4: if both exceed institutional investors’ (IIs) estimates, the Dow will move ahead comfortably. So far, given Intel’s (INTC) and Google’s Q3 earnings (GOOG), the Q3 earnings season is off to a decent start.

But if there’s an underperformance by the Fortune 500 in Q3 and the outlook for Q4 is not good, the Dow could easily revisit 8,000 or even 7,500.