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msnbc.com
updated 12/16/2003 10:11:15 AM ET 2003-12-16T15:11:15

Although it doesn’t mean much to Wall Street in scientific terms, the Dow Jones industrial average’s first close above 10,000 in almost two years is likely give the market an important psychological boost, analysts say.

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A late-day rally drove the world's most recognizable index of stocks up 86.30 points to 10,007.16 in Thursday's trading session, scoring the Dow's first close above 10,000 since May 24, 2002. In fact, the index has crisscrossed 10,000 umpteen times since it first closed above it on March 29, 1999. It flirted with the milestone in Tuesday's session, but only held above it momentarily.

Unlike technical levels in the market, which analysts predict by mapping trading trends and market patterns, Dow 10,000 is more of an emotional yardstick for investors. It is a level that suggests the worst may now be over for stocks, which have rallied from a five-year low hit earlier this year, experts say.

On the day the Dow first finished above 10,000, Wall Street celebrated with a shower of confetti on the floor of the New York Stock Exchange, where brokers donned "Dow 10,000" baseball caps. But the Dow index's latest foray above the 10,000 mark isn't likely to provoke the same enthusiastic reaction, say observers.

Back in the go-go days of the late 1990s, the promise of a new economy with untold riches boosted investors' spirits. But after a dot-com crash and a bruising, three-year bear market, irrational exuberance is likely to be replaced with investor relief that the worst is over for the stock market and that the broader U.S. economy is getting back on its feet.

Reaching Dow 10,000 "puts a rubber stamp of approval on all the good things that have been happening lately in the stock market and the economy," said Peter Cardillo, chief strategist at Global Partners Securities.

Cardillo also notes that the emotional impact of hitting the 10,000 level could help to wash away some of the skepticism over the market's remarkable ascent this year.

"10,000 has been a hard level to get through, but it's more psychological than anything else," Cardillo said. "The first time we broke through it we knocked at the level for some time before finally piercing it, but after that we eliminated the psychological factor and continued to rally."

Bullish investors like Cardillo have made the case that improving fundamentals, record-low interest rates, tame inflation and solid earnings growth point to a positive outlook for the stock market next year.

Cardillo thinks the market will continue to climb in 2004. All three stock market indices have risen steadily since hitting their year lows in mid-March. The Standard and Poor's 500-stock index, a closely followed measure of the overall market, is up over 30 percent.

Conversely, some investors see 10,000 as a bearish signal for stocks.

They see difficulties ahead in 2004, arguing that the stock market is fully valued at its current level, job creation is lagging and the Federal Reserve is likely to raise rates, which could stem the market's rise. The market is also vulnerable to geopolitical shocks, they say.

Some also think the 10,000 level on the Dow could soon trigger a wave of selling from some investors eager to use the milestone as an excuse to take profits from this year's rally.

"Dow 10,000 is played up by the media but it means very little," said Larry Wachtel, market analyst at Prudential Securities.

“Nevermind that earnings are improving. Nevermind that we've had nine months of gains. Everyone's supposed to rush in to buy stocks at 10,000, but for me it's a lightning rod to sell rather than buy. I think it will invite some selling into strength," he said.

Certainly, the 10,000 level on the Dow isn't very important from a technical standpoint.

Technical analysts, who use charts, graphs and statistics to predict exactly where the stock market is headed, say it doesn't represent a key area of resistance, which is a level in the market where persistent selling occurs.

"Just because the Dow hits 10,000 it doesn't mean momentum is back and the market will move higher," remarked John Caldwell, chief equity strategist at McDonald Financial in Cleveland.

Last week the Nasdaq Composite index -- a gauge of the broad technology sector that has doubled its value during this year's stock market rally -- moved above the emotionally-important 2,000 level for the first time since Jan. 15, 2002.

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