Breaking Dow 20,000

On Friday, 6 January 2017, the Dow was $0.37 from reaching a landmark, all-time high price of 20,000.  What is the significance of that price?  Why are traders holding their breath when the markets begin creeping to that price?

I believe that when it comes to the US Stock Market history can and will repeat itself.  So what does history teach us about all-time high prices and the US Stock market?  What about potential stock market price behaviors?  Is there something I should know before making the necessary adjustments in my bullish longer-term portfolio?  Let’s review:

The Price Trigger Point

I began trading in 1996 when the Dow was trading at almost 6,000.  The thought of reaching Dow 10,000 was not even on even ones minds – until it happened.

In the beginning of 1999 the Dow flirted with 10,000 – hitting it three times in one day before breaking it.  The concern was that there may be a large number of “selling” orders for stocks placed at the price.  Once that price was reached the Dow might pullback.

That is not what happened.  The Dow powered ever higher until January of the following year.  It reached 11,750.  And then the unthinkable happened.  I say unthinkable because at this time the consensus on Wall Street was that price to earnings ratio no longer mattered, the sky was now the limit for stocks – we’re in in a new age for the stock market – throw out the old rules.  We were in the “dot-com” era.

The Dow proceeded to drop by 39% by 2002 – the Nasdaq dropped by 78% in that time-frame – no one was safe being a bull.  We now know that it was not Dow 10,000 that I call the “trigger price.”  It was Dow 11,750.

It was no wonder that between 2004 and 2006 the Dow had a hard time breaking and staying above not Dow 10,000 but Dow 11,750.  Of course by 2007 we had a new price trigger point and that was Dow 14,198 – and the financial meltdown that followed.

All-Time High Prices Can be Tricky

When we have made a high price in the US Stock Market and the stock market has pulled back we now have a new potential price trigger point.  Remember that making a new, all-time high price is not enough.  It is the price that creates the pullback that becomes again, as I call it, the price trigger point.

We don’t have one yet – once we do have one we now know what to look for as far as longer term market behaviors.  We will have a new “price trigger point” so all the bulls can then beware.