INVESTING: If dominoes fall, Dow could crack all-time high this year

Keywords Economy

Do a quick check on the emotions and thoughts that just went through you after that first sentence.

Good.

Here are a few guesses as to what you experienced. First, you went through a quick panic, thinking about how much you have in the market and whether it is enough if the Dow really does hit a new high.

Then you had a sense of relief because the stock market is such a massively controlling force on our economy that if it is going to new highs soon, then-broadly speaking-the world must be at least pretty good right now.

The next thing you experienced was a feeling of doubt. Surely the Dow can’t hit a new high soon. There is just too much going wrong with the world today.

The last thing you did was go back to your sense of panic, but this time you thought more clearly about your overall investment position. If the Dow fires up to a new high this year, that is an 11-percent move, not including what may happen after it breaks new ground. That is not a move you want to miss.

Let me say this in clear terms. The Dow Jones has the potential to hit a new all-time high this calendar year. That is an 11-percent move from current levels. The market may not have too much in the tank after it gets there, but it can hit a new high.

There are a series of leading internal indicators. These indicators typically lead the Dow Jones, and that gives me confidence to be long in the stock market today. The Standard & Poor’s midcap index has hit a series of all-time highs in the last few weeks. Here is how I can see a new high unfolding.

The Dow came near 11,000 in December 2004, then experienced a correction. It came closer in early March, then went through a deeper correction. We have a resistance level in place that also happens to be a big round number. Break through that-and I believe it will happen in the near term-and a lot of doubters will rush in.

That rush can take the market up at least a few hundred more points. Then the reality of a new all-time high will set in, causing people to sell because they don’t believe it can happen. At that point, the market may go through a decent correction.

After that sell-off, the push to a new high can begin. If the Dow can actually get up enough momentum to get through 11,750, 13,000 may not be too far off. There are so many people who do not believe such a thing could happen that, if it does, a huge buying panic could ensue.

As of now, I feel strongly that the Dow will hit a new 2005 high, that is over 11,000, in the near term. I don’t really know if 12,000 is possible, but we will know more about those chances once we break new ground for the year.

There is some evidence of a narrowing market, but that may not keep the big indexes from flying. Just look at 1999 for a perfect example. For curiosity’s sake, you may want to check up on where your investment money is today.



Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}