Dow Scores Record by the Skin of its Teeth

Jul 19, 2007: 5:21 PM CST

Today was yet another record day for the Dow Jones Index, and writers are taking note by utilizing many pixels and ink to share this fact with their readers.

The Dow officially closed at 14,000.41. Yes, it is impressive and yes, it is a record, but let us remember that the Dow Jones Index tracks 30 large-cap American stocks. A more impressive headline would read “S&P 500 closes at all-time high” which is also true, but I admit, 1,553 is not as impressive as 14,000. Realize that this indeed is a significant psychological barrier that has been tested and now breached.

Analysts are also divided on the direction the market will take regarding this level: some state that the news will drive investors – who have held back through the rally – to ‘cave in’ and call their brokers to put more money into mutual funds and off the sidelines. Other analysts predict that this number will evoke a different reaction from main-stream investors, notably it will cause them to take profits and scuttle their money into safer investments.

I believe new price highs lead to higher price highs as people become greedy and clamor over themselves to make higher returns by putting more capital to work in the markets. People tend to lose their inhibitions when they see others making money and they are on the sidelines. Regardless, the mass public is becoming more aware of the records the current market is setting and when the mass public gets overwhelmingly bullish, bad things tend to happen next. Price does reach an extreme, yet when that extreme is reached depends on a variety of factors. Price tends to go ‘parabolic’ in shape before the end when all buyers have been satiated. I doubt we are near that point now.

In other news, Apple (AAPL) closed exactly at $140. Options expiration Friday is tomorrow – are traders in Apple jumping the gun?

Google missed earnings by 56 cents (average estimates were for $3.49 per share, yet Google reported $2.93 per share). As of 6:00pm Central Time, traders punished Google shares, sending them $41.00 lower. You bet this stock will be in the crosshairs of many daytraders Friday morning.

Here are the updated charts of the major indexes:

As a bonus, I am showing Apple’s chart and indicating how price moved after the iPhone release:

Keep an eye on Google tomorrow – I’ve seen this before where the after-hours punishment doesn’t reflect the actual trading by noon tomorrow. Regardless, there will be a significant amount of activity in the stock so be careful out there.

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