The activity that drove the Dow to record numbers this month provided more chills and thrills than a ride to the apex of a roller coaster ride for many individuals. Additionally, much of the news media added to this excitement and confidence as they provided rationales for the record-breaking numbers through toothy grins. Their smiles seemed to suggest that many news media personnel invest in blue-chip stocks.

Seasoned investor, however, normally ignore media excitement, narrow rationales, and roller-coaster thrills when it comes to long-term investment goals. Additionally, while records were made to be broken, if the investor considers that the last record of 11,722.98 was recorded on 14 Jan 2000, he might realize that it's taken over six years for the Dow to surpass its previous valuation.

Why do investors smile over this new milestone? One reason could be that a rise in the market provides an ideal time to sell or fold unwanted stocks that were purchased at a time when the stock market was considered overvalued. But, while increased volume and prices might create a scenario that resembles a piranha feeding frenzy, you must have the food that buyers crave. If you recognized that this spike in the Dow was short and unstable and you sold those unwanted shares during this peak spike, then you sold wisely.

At this point you might realize that possible negative employment data isn't the only reason for downward movement in the Dow this month. Major players who want to dump major portions of major equities also made the news on Friday, 6 Oct. Additionally, any trader who wanted to take advantage of the Dow's upward movement to sell their stocks and any other trader who wanted to short stocks for an inevitable downward trend also added to this momentum. But, a more realistic rationale for the downward trend is included in the adage that "what goes up must come down."

The laws of physics apply to the market as it does to anything else, but mostly on a short-term basis. Over the long haul, the Dow has crawled ever upward. One way to test this theory is to look at a chart of the Dow since its $100.25 high recorded in 1906. Mind you, Dow Jones & Company was founded in 1882, so that means that the first record high was a summation of almost a quarter-century's worth of record highs. From that point you can note the following highs on any long-term Dow chart, charted at approximate $1,000 increments:

From Jan 1906 to Nov 1972: $100.25 to $1003.16 = 66 years
From Nov 1972 to Jan 1987: $1003.16 to $2,002.25 = 15 years
From Jan 1987 to Apr 1991: $2,002.25 to $3,004.46 = 4 years
From Apr 1991 to Feb1995: $3,004.46 to $4,003.33 = 4 years
From Feb 1995 to Nov 1995: $4,003.33 to $5,023.55 = 0 years
From Nov 1995 to Oct 1996: $5,023.55 to $6,010.00 = 1 year
From Oct 1996 to Feb 1997: $6,010.00 to $7,022.44 = 1 year
From Feb 1997 to Jul 1997: $7,022.44 to $8038.88 = 0 years
From Jul 1997 to Mar 1999: $9033.23 to $10006.78 = 2 years
From Mar 1999 to Jul 1999: $10006.78 to $11209.84 = 0 years
From Jul 1999 to 18 Oct 2006 = 7 years

As you can see from the figures above, the Dow took some time to gain momentum because a number of factors - including the market crash in the 1930's - prevented any fast forward movement between 1906 and 1972. From 1991 and 1999, however, the Dow performed admirably, and I believe that this amazing momentum was fostered by the onset of home computers and online access to brokerage services and - eventually - to real-time quote pipelines. This momentum was one reason behind the overvaluation that occurred before the steep downward trend that occurred after the previous record high.

With that said, you might take a long look at the last line in the list above. The Dow reached its last $1,000 milestone in 1999, and as today, 18 October, the new $12,000 milestone has been reached. The total to date of seven years between the last milestone and today's new high is a far cry from previous 0 to 4-year time spans. What does this mean?

One interpretation states that the Dow remains bearish despite the latest upward trend. And, this perspective includes some pundit prophecies that report the Dow will continue to trade sideways for quite some time. The housing market slump, fluctuating gas prices, corporate scandals, and politics bear weight on any rapid movement toward $13,000. And, while blue chip companies are beginning to show earnings and dividends that might begin to meet their valuations, they still haven't exhibited the stellar performances that would reinforce a huge upward trend toward another overvaluation period.

Still, for investors interested in long-term investment goals, the recent new high presented a moment where Dow dogs could be dumped. Alternately, any sideways or downward movement in this market represents an ideal environment to add undervalued equities to your portfolio for diversification and as a hedge against riskier investments.

The Dow definitely isn't a place for short-term thrills, no matter how many teeth you can count in that newscaster's grin. You must truly be a long-term investor to realize the benefits offered by historic upward trends and increasing dividends. But, you might add those grins to your toolbox as an indicator that it might be an ideal time to rebalance your portfolio.

Until Next Week,
Linda Goin