History Of How The Dow Traded When It Crossed 100, 1,000, Then 10,000 - 20,000 Next

Jan. 09, 2017 7:41 AM ETTSLA, PSQ, DIA, SQQQ, NTES7 Comments

Summary

  • Jesse Livermore spoke of the century mark rule with stocks. The same applies to major market averages.
  • The Dow has spent one month dangling the 20,000 mark in front of investors like a carrot.
  • When the Dow crossed 100 then 1,000 then 10,000 for the first time, here is what happened.

Jesse Livermore spoke about the century mark in stocks. When a stock crosses 100, if it can do so with sufficient buying pressure, it is liable to continue significantly higher. The same applies to major market averages. The Dow Industrials has been teasing everyone over the last month as it continues to stall just before its 20,000 mark. It has done so a number of times today, coming just 0.37 points shy of the 20,000 mark. Indeed, some market participants may be attempting to manipulate the markets.

Today we share three other milestones in the Dow Industrials.

Back in March 1999, the Dow crossed 10,000 as shown in the chart below.

It then promptly had a high volume reversal that same day, finishing down -4.6% over the next four trading days. It took a third attempt through 10,000 for the Dow to successfully cross 10,000.

Then back in 1966, the Dow approached 1,000.

It was never able to definitely cross well beyond 1,000. It was not until 1982 that the Dow finally crossed 1,000 successfully which of course kicked off the brand new bull market.

Then what happened on January 19, 1906? The Dow crossed 100 for the first time!

It will be interesting to see how the markets trade after the Dow crosses 20,000. After a month of back-and-forth just shy of 20,000, "when" is still up for grabs.

Should the Dow move through 20,000 in convincing fashion, this implies it will probably head much higher as it began its current uptrend on November 7, 2016. That said, it could repeat what it did in March 1999. If so, its price/volume action would reflect a bout of selling pressure pushing it back below 20,000 with some force. That could signal an excellent opportunity to go short those stocks trading just below resistance. This allows you to keep your exit point close to where you initiated your position which keeps risk to a minimum.

In the chart below, we suggested members go short Tesla (TSLA) on the last period shown as TSLA had a reversal on higher volume after encountering resistance at its 40-week moving average. One could then use a move above its 40-week moving averages as their cover point should it move against you. But instead of rising up into resistance, TSLA proceeded to fall more than -10%.

Alternatively, one could buy inverse ETFs such as PSQ and SQQQ which is 1-times inverse the Dow Industrials ETF DIA and 3-times inverse the NASDAQ-100, respectively. These ETFs move higher when their respective major average moves lower.

Keep in mind this bout of selling pressure may very well be contained to just a few trading days, much as we saw in the March 1999 example above when the Dow crossed then reversed lower after hitting 10,000 for the first time. One secret to successfully shorting stocks is to be quick to take profits once the stock is nearing a support point as short squeezes can quickly reverse most of the gains made.

To gauge market direction, monitor the price/volume of leading stocks. If a number of leading names have healthy looking charts, that is a good indication of a market that wants to go higher. One could then be quicker to take any profits made on the short side by covering their short positions or selling any inverse ETFs.

Back in March 1999, leading stocks were still showing signs of wanting to continue their uptrends. Thus any profits made by shorting stocks or buying inverse ETFs in the few days following the March 19, 1999 high volume reversal in the Dow Industrials should have been taken.

On the other hand, if many leading stocks have broken down and/or are struggling back to areas of resistance, that is a red flag. New short positions could be initiated on any stocks that weakly bounce into areas of resistance.

Remaining fluid in the market is essential. Profits in shorts often takes just a few days to achieve since stocks take the stairs up, but typically take the elevator or trap door down. Once profits are taken on the short side, one could then immediately look for stocks with leading fundamental and technical characteristics that are trading close to major support areas (10-, 20- and 50-day moving averages are commonly used) to initiate buys.

One such stock was NetEase (NTES) on August 12, 2016. It had both the underlying fundamentals and technicals to make it through our rigorous filters. It then proceeded to march higher even in the face of a sideways then declining market.

Of course, the Dow could repeat what it did after it crossed 100 and 1,000, which was to have a significant about-face after crossing the milestone and head lower, sometimes for weeks if not longer. Monitoring the price/volume of leading stocks and major market averages is always key as it will keep you on the right side of the market. When it comes to making money in stocks or ETFs, we don't care whether we are on the long side or the short side as long as we are on the right side.

As everyone knows, timing is everything. We email members in real-time to let them know of any long or short set ups in stocks or ETFs as they occur. We mention this not to market our services to you, but to underscore the fact that timing is key when it comes to your investments. Whether or not you're following any investment website is irrelevant. Always have your alerts ready at all times so you can take action on your stocks and/or ETFs in the moment. I use a real-time stocks app on my mobile phone so I'm alerted even if I'm away from my desktop. And always keep a trading journal so you can highlight your mistakes to avoid making them in the future.

This article was written by

Dr. Chris Kacher & Gil Morales run www.VirtueOfSelfishInvesting.com Our VIX Volatility Model was up as much as +177.03% in 2016. After further debugging and improvements to the algo, it is up almost +15% in 2017 as of 1-13-17Go here for results: https://www.virtueofselfishinvesting.com/market-timing-results/dr-k-vix-volatility-model/0 In 1995, Dr. Kacher operated one of the first Internet-based stock advisory services. He then went on to generate triple digit percentage returns for six years in a row during the 1995-2000 period before moving to cash for most of the 2000-2002 bear market, one of the worst in history. From 1996-2001, Dr. Kacher served as chief research analyst for William O'Neil + Company, the New York Stock Exchange member firm, institutional research provider, and publisher of Investor's Business Daily newspaper. During this period, William O'Neil hand-picked Dr. Kacher to manage a portion of the firm's proprietary capital, whereupon Dr. Kacher became a top internal portfolio manager at the company. Dr. Kacher received his B.S. in Chemistry and Ph.D. in Nuclear Physics from University of California at Berkeley, where he co-discovered Element 110 on the Periodic Table of Elements and confirmed the existence of Element 106 for which his team named Seaborgium after Dr. Glenn Seaborg, the inventor of plutonium, who supervised Dr. Kacher's work as a doctoral student at UC Berkeley. Musically gifted, Dr. Kacher was classically trained on the piano beginning at age 3, composing his first song at age 5 which he called "Night Fog," and performing as a concert pianist from ages 5 to 12 in high-profile cities in the US and Japan. He released his debut CD comprised of 21 original piano compositions in 2009. He, together with Gil Morales, recently co-authored a number of books including the bestseller "Trade Like An O'Neil Disciple: How We Made 18,000% in the Stock Market", published by John Wiley & Sons. In the 1996 to 2002 period, Dr. Kacher achieved in his personal account a total return in excess of 18,000%, as verified by KPMG, the Big Four auditor here: http://s3.amazonaws.com/vosi/download/chris-kacher-kpmg-verification-letter.pdf Dr. Kacher is also currently a principal and Managing Director of MoKa Investors, LLC and Virtue of Selfish Investing, LLC, www.virtueofselfishinvesting.com. He has been a frequent guest and commentator on MarketWatch.com, TownHall.com, CBS host Andy Giersher's Portfolio Doctor, and CNN News Radio's Wall Street Shuffle, among other venues. Mr. Morales began his investment career in 1991 as a stockbroker in the Beverly Hills branch of Merrill Lynch. In 1994 he joined PaineWebber, Inc. where he quickly achieved Chairman's Club status as a top producer. In 1997, William O'Neil personally recruited Mr. Morales to join William O'Neil + Company, Inc. where he spent the next eight years as a Vice-President, internal Portfolio Manager responsible for managing a portion of the firm's proprietary assets, and Manager of the O'Neil Institutional Services group responsible for advising over 500 of the largest and most successful institutional investors in the world, including mutual fund, pension fund, and hedge fund clients. Mr. Morales also co-authored with William J. O'Neil a book on short-selling, "How to Make Money Selling Stocks Short," published by John Wiley & Sons in 2004. In 2004, Mr. Morales was appointed Chief Market Strategist for William O'Neil + Company, Inc. He, together with Chris Kacher, recently co-authored the book, "Trade Like An O'Neil Disciple: How We Made 18,000% in the Stock Market", published by John Wiley & Sons in 2010. He also contributed to the book, "Wiley Trading Guide, Volume II", published in 2011. In the period from January 1, 1998 to December 31, 2005, Mr. Morales achieved in his personal account a total return of 10,904.25% as audited by Rothstein Kass & Company, a hedge fund auditing firm . Applying a standard hedge fund 2%/20% fee structure to this return would yield a pro forma return of 5,572.04%, net of fees. Mr. Morales received his B.A. in economics from Stanford University. Mr. Morales is also currently a principal and Managing Director of MoKa Investors, LLC and Virtue of Selfish Investing, LLC, www.virtueofselfishinvesting.com. He has been a frequent guest and commentator on Fox Business News, MarketWatch.com, and CNN News Radio's Wall Street Shuffle and Opening Bell shows, among other venues. In 2010, Mr. Morales published "Trade Like an O'Neil Disciple - How We Made 18,000% in the Stock Market" (John Wiley & Sons) with his colleague and former O'Neil internal portfolio manager Dr. Chris Kacher.
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Disclosure: I am/we are long XIV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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