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Date Posted: 04:32:34 07/29/12 Sun
Author: Friday 27/7/2012
Subject: Dow's Return To 13000 Could Boost Investor Confidence

Dow's Return To 13000 Could Boost Investor Confidence
28/07/2012 7:01AM
--Dow Jones Industrial Average succeeds on third attempt this month at reaching 13000

--Dow's close back above 13000 could boost everyday investor confidence

--Simplistic upside pattern suggestion would yield target of 13480


By Chris Dieterich and Tomi Kilgore

NEW YORK-For the Dow, the third time was the charm. The average cleared 13000 after two prior attempts this month. In doing so, it provided a psychological boost for investors by reclaiming a level it hadn't seen in 2-1/2 months.

It wasn't easy. The Dow Jones Industrial Average came within 40 points of 13000 in intraday trading on July 5--then it embarked on a six-session losing streak. And on July 19, the Dow came within 25 points of the round number, then suffered a three-session streak of triple-digit losses.

On Friday, the Dow fluttered within 25 points of 13000 for more than an hour before finally bursting through a little after 12 p.m. EDT. The index closed up 187.73 points, at 13075.66, boosted by hopes the European Central Bank is preparing a plan of action to ensure the euro zone is preserved.

The Dow's push above 13000 "could be good for retail confidence," said Christian Thwaites, president and chief executive of Montpelier, Vt.-based Sentinel Investments, speaking of everyday "retail" investors. "Given [the Dow's] constituents, it might be good for some people to see how well big names have done."

Still, Mr. Thwaites said he tends not to pay much attention when stock benchmarks surpass or sink below round numbers, preferring to focus on more-fundamental metrics such as valuation.

Technically speaking, there is potential for further gains.

Frank Longman, technical analyst at boutique investment bank Brean Murray Carret, noted the Dow had spent the past month stuck within a range of 12500 to 12980.

Given it has now broken out of that range, Mr. Longman said "a simplistic upside pattern suggestion for those who are near-term bullish" is to take the height of that range--480 points--and add it to the breakout point, which in the current case is 13000. The theory is, the energy expended by investors to keep the index within the previous range will be equal to the energy released after the breakout.

That would yield a potential upside target of 13480.

Although pushing past 13000 might provide a psychological and technical boost for investors in the near term, historically, pushing through big, round numbers hasn't translated into bigger returns over the long term.

Since 1965, the Dow has pushed above 1,000-point increments more than four dozen times. But the performance of the benchmark in the one-, three- and six-month periods after surpassing a round number has lagged behind average gains over those times, according to Schaeffer's Investment Research.


Write to Chris Dieterich at christopher.dieterich@dowjones.com or Tomi Kilgore at tomi.kilgore@dowjones.com.


Subscribe to WSJ: http://online.wsj.com?mod=djnwires


(END) Dow Jones Newswires

July 27, 2012 17:01 ET (21:01 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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