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Market's post-9/11 high stokes optimism

By HELEN HUNTLEY
Published January 10, 2006

Barreling ahead with a January rally, the Dow Jones Industrial Average closed above 11,000 Monday for the first time in more than four years. It's a welcome relief from the market doldrums of the past year and a sign that investors are feeling better about the economy and the outlook for corporate earnings.

The much-watched market barometer finished the day at 11,011.90, a gain of 52.59 points. The Dow stands more than 700 points below the all-time high of 11,722.98 recorded six years ago, but it's in the best shape it has been in since before the terrorist attacks of Sept. 11, 2001.

The impact of big, round numbers on the Dow is mostly psychological, but "psychology is almost as important as fundamentals in the market," said Phil Dow, a strategist for RBC Dain Rauscher in Minneapolis.

"I think it gives people confidence," said Tampa investor Richard Egan, an accountant. "A lot of people are not in tune with day-to-day market conditions. When it hits a high and it's a headline in the paper, somebody who's a casual investor sees that and thinks things are better. Considering all the things that are happening in the world, it's kind of amazing to see."

From an analytical standpoint, breaking above 11,000 is positive because stocks have been in a long period of "accumulation," a technical term for going nowhere. Although there could be a pullback, a breakthrough like this one may signal stocks have started a new upward trend.

"The market is extremely healthy," said technical analyst Ralph Bloch, who publishes a newsletter in Riviera Beach. "I can make a technical argument for the Dow reaching 12,000."

Another technician, Rodney Johnson of the H.S. Dent Organization in Tampa, said 11,200 is the real number to watch: "If you cross that, you get all the way up to 11,700."

Other market professionals say the number is meaningless. "When people start talking about that stuff, it means it's a slow day in the financial world," said Tampa money manager Robert Thompson at Bay Capital. But he remains positive on stocks, as he has been since the end of October.

For some who try to read the market tea leaves, the most significant thing about Monday's close is that it means the market finished up for the first five trading days of the year. That's almost always a sign that it will finish up for the year as a whole, last year being a notable exception to the rule.

Not only is the Dow up 2.75 percent for the year, other market indicators also are doing well. The Standard & Poor's 500 Index is up 3.35 percent and the Nasdaq Composite Index is up 5.14 percent.

There are some good reasons for the advance: Investors are optimistic that the Federal Reserve Board is nearly finished raising short-term interest rates. Corporate earnings continue to grow, and because stock prices haven't kept pace, valuations are more reasonable than they were a few years ago. Energy prices have stabilized, at least for the moment.

And there's plenty of cash sitting on the sidelines, which could come into the market and which would be augmented by the usual January influx of pension and retirement account contributions.

Of course, bad news could quickly sour skittish investors on the market's recovery.

"I'm still cautious at this point," said St. Petersburg investor Sheila Bustamante.

Largo investor Charles Hacker, a retired grocer, said the big number might even discourage some investors, who could conclude the market has topped out.

--Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

[Last modified January 10, 2006, 05:17:26]