In this market, it bears repeating that a great deal can change in a short time. That's why from an investor standpoint, the Dow's level really doesn't count until 4 p.m. ET.
Of course, traders will quickly point out that intra-day and hourly overbought/oversold indicators certainly count, and if you're in that category of market participants who trade daily with success, congrats.
But for the bulk of investors/readers a longer time horizon is relevant, and that's why it's not prudent to read too much into the Dow's level before the 4 p.m. close.
With the VIX, the Chicago Board Options Exchange Volatility Index (NYSE: $VIX.X), the benchmark index for U.S. stock options, at record highs, the stock market is displaying near-unprecedented volatility - - or wild gyrations characteristic of periods permeated with fear, uncertainty, and announcements events that change economic forecasts, almost daily.
Typically trading between 15-30, the VIX has been above 40 for about a month, and has traded above 80! On Thursday at 11 a.m., the VIX was at 66.38, down 3.58.
And the VIX's expression in Dow terms? That's right: massive swings in the Dow -- 500-point reversal moves intra-day, 700-point up days followed by 800-point down days, other wild swings, 5% up days in a 10% down month, and of course, the old ulcer-generator -- massive selling at 3 p.m. ET.
And that last point -- the appearance of that dreaded force in periods of sluggish economic growth - - the arrival of the '3 o'clock bears' -- is one reason investors should not take the Dow seriously until after the market closes. Further, from an investment analysis standpoint, the only level that counts is the daily close.
Recent market closes indicate: a battle
What are the Dow's recent daily closes telling us? Most of the market's technical indicators are bearish, but an equally important fact is that right now a battle is taking place between the bulls and the bears: the bears argue the worst economic news stemming from the financial crisis is yet to come; the bulls, that the worst news is behind us, and that stimulus -- fiscal, monetary, and otherwise -- will get the U.S. economy moving again. The Dow is currently around 9000, but the real battle is 8000: if the bears can break through that key support and push the Dow through 7800, then 7600 it will not be a pleasant time for investors.
But if the bulls can hold 8000, a bottom will be in place, setting the stage, potentially, for future gains.
Market Analysis: Two economic fundamentals that will help predict the Dow's value: corporate earnings and job creation. If each is increasing, so will the Dow.
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