Dow 10k Re-Re-Redux

With the Dow Jones Industrials Average making its triumphant run to its first close back above the psychologically key 10,000 mark as of Wednesday's close, I find myself taking stock (pun intended) of where we're at, how far we fell and how ferociously we have come back. But despite the huge losses of 2008 and 2009 in the major U.S. indices, and despite the massive 50-60% rally across the board since the ridiculous March 2009 lows, I keep coming back to that same damned theory that I've written about before, something I myself first theorized way back at the end of the 1990s when the Dow first flirted with the mythical five figure level -- that key psychological levels through history in the market have always taken many years -- a generation or so, typically -- from the first time we cross those points on the upside, to the last time we cross them before moving well beyond that level never to touch it again.

I've written about this theory several times before here over the past year, but every time we cross back over the 10k mark on the Dow -- either on the upside or the downside -- I find myself feeling that deja vu of having seen this level many times before, and my resolve and belief in the correctness of that long-term Dow theory strengthens somewhat. For many of you out there, the horrific plunge in the market over the past year might have forced you to pay more attention to things like the Dow Industrials, the Nasdaq, and even your specific portfolio based on what was going on as you actually felt your net worth shrinking by what seemed like leaps and bounds, some of you perhaps for the first time in your lives. So, the Dow being at 10,000 again might seem like a major move to some, but in reality the Dow has crossed back and forth over this mark more than a handful of times since first touching it back in late March 1999. In fact, the Dow has crossed above 10,000 on a closing basis 26 separate times in the past ten years, and that doesn't even come close to capturing how many times the index crossed 10k during the trading days themselves. Following is a chart from CNBC of all of those 26 occasions where the Dow closed on either side of 10,000 on two consecutive trading days:

Dow 10,000 Crossover History

So you can see, the world's most closely-watched stock index is no stranger to clawing its way up to and over the 10,000 mark. And, if you look at that chart, you can see that doing so does not mean a whole lot on a medium-term basis as far as the index holding that level.

The first time 10k was hit was back in March 1999, and it took only about a week bouncing above and below 10k before we moved comfortably above on the way to 11,000 by April of that year, and roughly 11,500 by October 1999 which proved to be a near-term top for the markets. By February 2000, you can see by the chart on the right we closed back below 10k for the first time in close to a year, where we dilly-dallied for another couple of weeks before again remaining above 10k for the next several months. We closed below 10k for one day on October 18, 2000 but then spent until the following March again mapping out ground back in the 10-11k range. After just a few days in March 2001 below 10k, we jumped back above until that summer when the fallout from the internet bubble bursting combined with 9-11 to send the Dow back into the 8000s on a closing basis. Investors rallied to the buy side smartly as the nation recovered from the 9-11 disaster, sending the Dow back over 10k in December 2001, but unfortunately the economic fallout from the terror attacks cast a pallor over the market and kept the Dow well below the 10k level for most of 2002 and 2003 despite six separate successful closes above the mark at various times over this period. 2004 was a year where the market tried to find its footing as the economy began growing again, and after flirting with 10k over and over during the year, finally on October 27, 2004 the market moved back above 10k for a sustained period, one which many thought was the last they would ever see of Dow 10k as the index rallied strongly for four years, topping out in October 2007 at over 14,100. But the credit crunch and then the events in the banking sector late in 2008 made Dow 10k a reality all over again, taking the index as low as 6500 and change in March 2009 before this massive rally has once again lifted us to a close back above the 10k level here on October 14, 2009.

What does all this mean? For one thing, don't expect to be done with Dow 10k over the near-term just yet. A quick look at the above chart shows that, the first time we hit 10k in 1999, it took 3 crosses back and forth on a closing basis for the index to finally sustain a move above the five-figure mark. In 2000 there were another four Dow 10k crossovers, and six more in 2001. Five more times the Dow passed over the 10k level in 2002, finally crossing back to the upside in 2003, and then bouncing again around 10k six separate times in 2004 before embarking on the mid 2000's rally that eventually led to 2007's historic Dow top.

So, in the near term, it is probably reasonable to expect at least a few closes below 10k before investors decide if this rally is going to continue to grow -- and then stick -- or if it's time to take a breather after the most ferocious short-term rally in U.S. stock prices since the Great Depression. And, more importantly, on a long-term basis we are also probably not out of the woods yet. Recall from earlier posts here that Dow 100 took about 26 years from first touch to last touch, and Dow 1000 similarly took over 20 years from first to last touch. If we follow that same pattern, then it's only now been 10 1/2 years since we first touched Dow 10,000 back in March 1999, so we could be only halfway to the point where we are finally above and done with 10k once and for all.