Dow Flirting With 12,000
Normally, most professionals don’t put much stock in the indices crossing any of the big, round numbers. (Think of it this way, do you believe that the mutual fund managers at Fidelity or Vanguard spend much time worrying about the level of the indices when working their portfolios?) Well, okay, Dow 10,000 was indeed a lot of fun the first ten times or so, and I will admit that a crossing of Dow 14,000 would definitely get my attention. But other than that, I don’t really understand the press’s love affair with each multiple of 1,000 on the DJIA.
However, the current flirtation with Dow 12,000 seems to be taking on some additional significance. Twice over the last two days the DJIA has breached the not-so new milestone (the last time the Dow closed over 12k was in June 2008) and twice the bears have rallied together to hold the line, with Thursday’s session closing at 11,989.83. As they say, close, but no cigar.
Perhaps it is the fact that the S&P 500 is flirting with its very own big, round number – 1300. And like its blue-chip brethren, the S&P has also spent the past two sessions flitting back and forth above what appears to be an important line in the sand. And also like the Dow, the S&P 500 failed to break on through to the other side.
Maybe, just maybe, these big, round numbers represent the point at which the bears have finally decided to make a stand. There is little doubt that the boys had loaded up their computer toys with sell programs each time either index managed to spend a few minutes across the line. Like that arcade game where kids whack the mole every time it pops its head up through the hole, the programs knocked the indices back each time they peeked over the line. But then again, the bears have been unable to put much of anything in the way of a defense on the field over the past five months. So I’m going to need to see something more than a two-day skirmish before I put much stock in our furry friends’ ability to defend their turf.
Or perhaps Thursday’s flirtation had to do with the buyers deciding that they’d best cool it with another big number – the Q4 GDP growth rate – due out this morning at 8:30 am eastern.
To be sure, the big, bad numbers that were released on Thursday didn’t seem to bother the bulls for very long. Orders for Durable Goods were disappointing and the big increase seen in Weekly Jobless Claims should have gotten some attention. Oh, and the fact that S&P decided to downgrade Japan’s sovereign debt rating a notch might have been seen as a negative in the not-too distant past.
However, our heroes in horns appeared to be on a mission in the early going yesterday, shaking off any and all bad news and instead, focusing on the goal line. But now that they’ve gotten the ball inside the five-yard line, they haven’t been able to push across for the score just yet. And while the bulls are indeed winning the game, it should be noted that the team is facing a rather important third-and-goal here. And frankly, we’re not sure a field goal is going to suffice.
So, if you happen to be out and about today, the only thing you need to watch is the action around those big, round numbers.
Turning to this morning… Stocks were mostly lower overnight in the overseas markets. However, most everyone is waiting on the GDP numbers here in the U.S. So, without further ado, let’s get to them.
On the Economic front… The government’s first estimate of the nation’s fourth quarter GDP shows the economy grew at an annualized rate of 3.2% in the quarter. This was below the consensus expectations for a growth rate of 3.6% but above the Q3 rate of 2.6%. (Recall that the final Q2 rate was +1.7% and Q1 was +3.7%). For the year 2010, GDP grew by 2.9%, which is the best level since 2005. On the inflation front, the Deflator came in at 0.3% vs. 1.6%. In addition, the Employment Cost Index was reported at +0.4% vs. +0.5% and last quarter’s +0.4%.
David D. Moenning
Editor: Top Guns Trader
