Why the Dow hitting 17,000 would matter

Is it just a number? Some say the milestone could carry some weight with investors and trigger more buying.

By MSN Money Partner Jun 13, 2014 10:29AM
Image: Stock market © Digital Vision/SuperStock
By Victor Reklaitis and Wallace Witkowski, MarketWatch

The Dow Jones Industrial Average ($INDU) could punch through 17,000 and keep climbing.


Or the blue-chip benchmark might hit that milestone level, then struggle to break through and end up tumbling.


Another possibility is that big round numbers like 17,000 are meaningless, but plenty of experts say they actually do matter to the U.S. stock market. And this record level might even be bullish.


Terrance Odean, a finance professor at the University of California at Berkeley, anticipates the Dow reaching 17,000 will spur more buying.


"I expect that the biggest effect of hitting 17,000 is that the event gets news coverage and, in the process, reminds (or informs) investors that the market has been going up," Odean told MarketWatch in an email. "While this could prompt some people to sell, I'd expect it to trigger more buying than selling."


Why does Odean see buying?


"People like to chase trends," he said, "and people are more likely to buy when they are thinking about the market than thinking about something else such as the World Cup."


The Berkeley professor doesn't see 17,000 offering up what technical analysts call "resistance." Odean notes that resistance often occurs because investors who bought a security at a particular price sell it once it regains or tops that price. (Other market watchers have described this as overhead supply.) 


But in the case of the Dow, it's never reached this milestone before.


Few investors "buy the DJIA -- sure you can buy a DJIA ETF, but who do you know who does? -- and nobody has bought the DJIA at 17,000," Odean said. 


Richard Geist, head of the Congress on the Psychology of Investing, suggests big numbers like 17,000 should be meaningless, but the fact is they help us make sense of the financial world, so they end up having importance.


All investors "try to find ways to make meaning out of market events (even when they don’t have meaning) because that’s the only way they have of containing their anxiety," Geist told MarketWatch in an email.


"So we all generate emotional convictions, e.g. if the S&P reaches 1950, there will be a correction, or if the S&P reaches 1950, it will go to 2000."


Then these expectations end up spreading, Geist added.


"These emotional convictions . . . tend to be contagious, leading to herd mentality," he said. "So in reality, the numbers are meaningless, but will always remain emotionally significant except for investors like Buffet who have found ways to recognize and put these emotional convictions aside."


Still not convinced about the importance of 17,000?


One academic paper has provided an extensive look into round numbers, studying more than 100 million stock transactions.


The paper's authors say they found excess buying "at all price points one penny below round numbers," as well as extra selling a cent just above round numbers. You can read the entire 45-page paper, produced by researchers at Indiana University and Southern Methodist, at this link.


More from MarketWatch

23Comments
Jun 13, 2014 3:26PM
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In the Obama economy 17,000 is a Potemkin village.  The middle class is suffocating under the weaponized tax code and burgeoning federal behemoth.  The middle class is dying, along with the American dream.  Soon there will only be a government ruling class and a mass of serfs.  But, of course, that's how Obama's ilk want it.
Jun 13, 2014 10:39AM
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17k might be a nice number on paper, but paper wealth is meaningless until you convert it into tangible assets.  Wealth is a funny thing - generally the amount of effort that it takes to acquire wealth is all that's necessary to lose it.
Jun 14, 2014 11:50AM
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There's not one single mention here about what happened when the Dow hit 16,000, 15,000, etc.  It employs all kinds of other stats to suggest what 17,000 means in terms of where it will push the market higher.  But no example of previous times the very thing that's being considered occurred!

It's like the time in 1862 when General McClellan wondered how deep a river was and if infantry could wade across.  After arguing for 15 minutes about how deep they thought it was and why, a new West-Point grad assigned to McClellan, George Armstrong Custer, rode his horse into the middle of the river and called out, "This is how deep it is, general."

So let's be like Capt. Custer - at least before the Little Bighorn!  When the DJIA hit 15,000 in May, 2013, it fluctuated above and below it three times through Oct. 2013.  When it hit 16,000 in Nov, 2013, it dove back below it two times in Dec, 2013, then below 15,400 in Feb. 2014.

Now we see why there was no mention of previous 100's marks: it would show the whole article is MEANINGLESS!

Jun 13, 2014 10:56AM
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When it hits 17K, I may sell some stuff, and then we would have some tangible assets, I guess ?
Jun 13, 2014 11:29AM
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Dow hitting 17,000 matters mostly in that it's a Propaganda tool by Market Manipulators to push folks in or out. Other then that, at the end of the Day, fundamentals rule the day even if they are ignored for extended periods.
Jun 13, 2014 4:28PM
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Brutus.......I hate to disillusion you but that "meaningless paper wealth' did not discourage an auto dealer from accepting it as payment for a new jaguar I recently purchased. Of course I didn't inform him that it was from market gains.
Jun 13, 2014 3:46PM
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I'm looking for 17,666 .    That is when everything will be ready.  The anointed one will then be ready to save humanity.

Jun 13, 2014 3:11PM
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they'll be saying "why dow matters hitting 27,000" or wherever like 37,000. human nature it'll never stop.
Jun 16, 2014 11:35AM
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Debt is eventually meant to take care of itself, I've really never understood the theory or practice...?


And if someone tries to explain it, I just feel they don't know anymore than I do..

The reasoning behind all this is; We have had Debts and Deficits, for Decades...

Occasionally they go away, and we seem to "Balance our Budgets." 

It seems strange, that a lot of the time they dwindle or disappear in a hurry...?

I can't picture this in a "Household situation" because debts last many years unless you might be lucky enough to win a Lotto....Or have some other major windfall...?


Hard to believe, that people working and corporations paying taxes, can eliminate a Nation's debt in a very short time?  And as far as printing your way out of debt, that must be some sick joke..?

Trade deficits, are somewhat different; Balancing trades of import and export, would just seem to take care of themselves..?

Jun 16, 2014 4:25AM
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It would probably prove the government it pumping a whole hell of alot more QE into the market than their telling us they are!
Jun 13, 2014 4:13PM
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Glove....I guess you don't know..??  But Obama, is only the President for eight (8) years, tops..


I'm not really sure how much he had to do with the Patriot Act....several years back.?

That kind of usurped a lot of American's rights, and pretty much allows the Government to do what they want with our Constitution, concerning a lot of issues.

Bush isn't one of Obamas ilk, was/is he..??

Jun 16, 2014 10:58AM
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There is a huge psychology aspect to everything. That's why you hear very little about our Nation Debt fast approaching $18Trillion nor huge ongoing Global Debt Crisis. Psychology has allowed for a Fiat Dollar System to thrive for this long of time-frame. There were articles in the past that talked about DOW 15,000 and DOW 16,000. To state they do or don't have meaning, depends on various factors, all of which aren't self evident.
Jun 15, 2014 9:01PM
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the dow has strong support at 7,000, but first it will test 13,000 then 10,000 before
we know the next low before it takes off again, the last low would be 4,100 but that's
allot...
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