Thinking against the Dow

“Dow tries for record again. Slump in oil prices gives blue-chip indicator a chance at knocking out its all-time record; NASDAQ more subdued; oil stocks tumble”.

How could it be that stocks will lose the interest of the people? Could we really see a “Dow 6,000”? I mean, everyone today owns stocks. My grandmother trades them, my little brother knows what MSFT stands for and every household has a portfolio full of Intel, GE and “we-can-be-millionaires-if-this-stock-goes-to-a-dollar” picks.

I guess the best example is appetite. We have an appetite for food, we’re hungry. We eat. Then, we have eaten, we (or at least most of us stop eating when we’re full or when the feeling in our stomach isn’t better than the taste in our mouths.

So what will be with stocks. The famous big brothers that have been watched daily since the mid-80s, The Dow, the S&P, NASDAQ, the Russell. Each has risen substantially in the recent weeks but where to from here?

All great things do settle. The show is a hit but at the end of the day, the performers take a break, the tigers get their rest, the animals are fed, the circus gets cleaned, the vendors count their scores and the people go home.

That’s pretty much where we stand. It’s the bottom of the ninth just before the traffic-worrying box-seaters get ready to head home.

It goes something like this: early 1980s. Not a trader in sight. Stocks begin to rise, of course not enough to grab sudden attention (similar to gold recently). The Dow has held onto a close range of about 1,000. Toward the mid-80s value investors begin to pour in. The Dow runs up fast, halting suddenly in October 1987. It crashes. This only excites the crowd that has thus far been missing out on the action. The Bulls begin to charge in. The Dow takes of from 1750 all the way to an astounding 11,700 in January 2000 reaching an inter-day peak of 11,908!

From there it began to fizzle. But has not gone entirely. 5 1/2 years later we stand at the same peak with the Dow currently at 11,750. Each and everyone still hangs on to their old trading ways, and has proven successful especially if they got in the lows of 2003.

But from here we will most probably see stagnation, a few early leavers, a few very late comers, and a lot of speculation. But it will too pass. After a while traders will get bored of seeing the “same Dow, different day”. Many will jump in at historically low P/E not seen since the 80s. But only few will stay while many others make substantial gains in commodities, real estate (eventually), foreign equities, bonds and so on. 11,000 will be a trademark seen as regularly as a stop sign at the intersection. Sometimes even ignored entirely. Many of the “successful trading methods” will cease to provide substantial gains while others realize that speculation doesn’t pay or that “stocks are too risky and complicated”.

It will happen simply because it must. For now its back to the books. Awaiting the next run-up, maybe catching a show or two across the street until the lines here form once more. Wall Street will become another avenue in the City while the daily Dow is replaced by gold prices or interest rates for your CD and Money Markets.

But after all the performers leave and the lights go dim, make sure your on line for the next viewing. You wouldn’t want to miss it for the world.


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