Sunday, March 1, 2009

The Frightening Reality of Dow 7000 and Below

Right now, the Dow Jones Industrial Average is sitting only 62 points away from breaking through to the 7000 level. The Dow 7000 is probably the most significant psychological barrier that we have seen in decades. It has a lot more to do with "where we were" than anything else. That "where we were" was a 2007 high of 14,198.10 and 7000 is, effectively, 1/2 of that former level.

I think the stock market will be stunned by any level below Dow 7000. It could be a point that exacerbates the fear we have already seen in the market. It could result in something akin to a blow-off bottom with a dramatic one-day point drop.

Since October of 2007, we have been in a stock market crash that parallels O.J. Simpson's slow speed chase. It, to some extent, has been a controlled crash of more that 7000 points in about 17 months. A lot of people have escaped the stock market out of fear and because they have lost so much money in funds and their 401k's. However, those that are still in the market may come to a collective "throw in the towel moment" as soon as the Dow goes through that 7000 psychological barrier.

I hope I'm wrong, but this could be a situation that warrants concern.

UPDATE @ 4:07 PM (Pacific) Bloomberg TV is reporting that the DOW Futures in Tokyo (ahead of tomorrow's trading) are reflecting an opening of 6988 or 12 points below the worrisome DJIA 7000 level.

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