MainBanner JavaFiller
quote.fool.comToday's FeaturesQuotes, News, Charts, Data

I'm the greatest golfer. I just have not played yet. -- Muhammad Ali

The Dow at 8000:
Is it speeding up?

by Keith Pelczarski (TMF Czar)

ALEXANDRIA, VA (July 16, 1997)/FOOLWIRE/ -- The Dow Jones Industrial Average (DJIA) topped the 8000 mark today, eliciting the usual posturing and predictions from market gooroos. It seems like only yesterday that these market prognosticators were bandying about the significance of the DJIA breaking the 7000 mark. It wasn't actually yesterday, it was February -- still a relatively short time when compared to the history of the Dow. These 1000-point milestones just keep coming faster and faster.

So why is this major market index moving so quickly? There are numerous theories on the underlying causes, and I don't claim to fully understand all the causal factors that are spurring the move. That said, there is still some utility in the objective comparison of the numbers. In order for such analysis to give us a clear apples-to-apples picture, we should also examine the rate of gain, not just the raw number. The gains in the DJIA have certainly been impressive in terms of absolute numbers, but how do they stack up in terms of relative gains?

It would be nice to be able to say that there's nothing extraordinary about the recent rate of growth, but the numbers don't quite bear that out. Let's take a look at the average daily percentage gains for the DJIA as it climbed from each 1000-point milestone to the next.

1,000 --> 2,000 100% gain over 3573 sessions --> 0.0194% daily gain
2,000 --> 3,000 50% gain over 1080 sessions --> 0.0375% daily gain
3,000 --> 4,000 33.3% gain over 977 sessions --> 0.0294% daily gain
4,000 --> 5,000 25% gain over 190 sessions --> 0.1175% daily gain
5,000 --> 6,000 20% gain over 226 sessions --> 0.0807% daily gain
6,000 --> 7,000 16.6% gain over 85 sessions --> 0.1808% daily gain
7,000 --> 8,000 14.3% gain over 104 sessions --> 0.1285% daily gain

These numbers suggest that the rate of growth has accelerated over time. Despite the siren call of these numbers, it would be somewhat presumptuous to use them to draw any definitive conclusions about the market's future prospects -- there are just too many variables that aren't entered into the equation. In fact, Fools believe that it's impossible to accurately predict market direction with any kind of consistency. We're content to invest in good businesses at attractive valuations, holding them for the long haul. With that in mind, we're also big fans of a good debate -- which is why we'd like you to weigh in with your opinions about the market's direction in our Communion of Bulls and Communion of Bears folders. Are we headed to 10,000 soon, or is there a bear market lurking around the corner? Let us know what YOU think.

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us