Dow Falling Below 10000 May Mean More Bad News to Come

By Ken Sweet
FOXBusiness

Yes, the Dow Jones Industrial Average falling below 10000 -- even just intraday -- is important.
Investors said they are bracing for more downward pressure and even more selling, at least in the near term, with the Dow showing how easily it could sink below the 10000 mark. They expect retail investors, who have for the most part held on, to start pulling out as the key psychological level is broken.

“It’s the kind of barometer that makes the evening news,” said Quincy Krosby, chief market strategist at The Hartford. “The Dow being below 10000 just makes the individual investors very nervous.”

Of the three major indexes tracked by U.S. investors, none is more popular with Main Street than the Dow Jones Industrial Average. The 100-year-old index is consistently cited by the media and individual investors -- much more than broader market averages like the Standard & Poor's 500-stock index.

The S&P 500, which contains 500 companies, compared to the Dow’s 30 stocks, is what Wall Street usually tracks and cites. But when market mentality matters, the Dow becomes the bigger influence.

The Dow’s 10000 level is “both technical and psychological,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

The Dow first broke above the 10000 level in 1999 during the dot-com bubble, only to fall below that level in 2002 when the bubble burst and the country entered a recession. The popular index eventually recovered in 2004 as housing became a popular investment and the economy started to boom.

Being below the 10000 mark on the Dow will probably trigger more selling, technical traders said. Program traders have instructions built into their software when indices hit key technical or psychological levels.

“The 10000 mark has been a key level for rallies and selloffs,” said Richard Sparks, senior equities strategist with Schaeffer’s Investment Research. “We were climbing to 10000, it acted as a ceiling, and when we fell to 10,000 after the dot-com bubble, it acted as a floor for some time.”

Sparks said that the next technical level for the Dow is hard to gauge. Traders now have to go back several years to get technical floors -- and the economy affecting the last drop below 10000 isn't the same economy affecting this market.

The good news, or maybe some possible glimmers of light for investors, is the amount the Dow has fallen in this market downturn. In the average bear market, the Dow traditionally falls around 34% from its high. From its October 2007 top, the Dow is now down around 32%.
"We're getting to the point where people are selling for selling's sake," Krosby said. "A lot of times, that's the sign of market's bottom."