(Dow Jones) The 11000 level for the Dow Jones Industrial Average is every bit as
significant as Dow 10000 was, if not more.
Under normal conditions, resistance just above that level might be enough to cap the market's gains. But as long as the Federal Reserve keeps liquidity conditions at exceptional levels, and money keeps flowing into stocks, there's no reason to believe Dow 11000 will offer anything more than perfunctory resistance.
The last time the stock market was in a similar position, with the economy transitioning from recovery to sustainable growth, the Dow got above 10900 21 times in intraday trading in 2005 and the first week of 2006 without reaching 11000. It finally broke through on Jan. 6, 2006, about two years after breaching 10000. At the time it broke through 11000, the unemployment rate had been declining for more than two years and nonfarm payrolls had been rising for 28-straight months, while the fed funds rate increased to 4.25% from 1%.
Needless to say, the current economy is nowhere near that level of sustainable growth. And just above 11000, there is still the 200-week simple moving average at around 11130 and the 61.8% retracement of the October 2007 to March 2009 bear market at 11245 to contend with. The Dow was at 10975 in afternoon trading on Tuesday.
But recent economic data indicates that, like the Fed says, economic activity continues to strengthen and the labor market is stabilizing. With the Fed still content to keep the fed funds rate exceptionally low, and with money flowing steadily into stocks, it will take more than technical barriers to stop the rally. According to data provided by EPFR Global, U.S. equity funds have taken in new money for the last eight weeks, the longest such streak since the fourth quarter of 2004.
Besides, the Dow Jones Transportation Average and the Nasdaq Composite have already overcome similarly significant technical levels at 4000 and 2200, respectively. In addition, both indexes have surpassed their respective 200-week SMAs and the 61.8% retracements of the bear market. If the transports and Nasdaq can do it, there's no reason to believe the Dow industrials can't, as long as current conditions continue. The Dow transports were at 4398 and the Nasdaq was at 2426 on Monday.
One thing that could stop the Dow's advance is a continued rise in Treasury yields or further liquidity draining measures by the Fed. The Fed also said it can put upward pressure on market rates without raising the fed funds rate by raising the interest paid on balances that depository institutions hold at reserve banks. It could also signal in the next policy statement that the fed funds rates won't stay exceptionally low for much longer, but that wouldn't happen until they meet again on April 27-28.
By then, however, the 11000 could be just another round number the Dow put behind it.
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