NEW YORK -- Wall Street is boasting that the Dow industrials have broken through a major resistance level. That's trader lingo for, "It's time to buy again."
But how do market observers know when a big rally like this past week's is bona fide or at least very significant? The answer in this case, they say, is that the Dow reclaimed the 11,000 level that it relinquished eight months ago. And it reached that milestone amid heavy trading in which individuals, not just institutions, got back into the market.
"This was a level that for one reason or another it had resisted, and now all of sudden -- boom!" said Richard Dickson, a technical analyst at Hilliard Lyons in Louisville, Ky.
The market's other major indexes tested their own barriers, with the Nasdaq composite index continuing to weave in and out of the 2,200 level, as it has done throughout the month. And the Standard & Poor's 500 -- the market's broadest measure -- on Wednesday closed above 1,275 for the first time since Feb. 20.
But analysts said the Dow's move was the most significant because 11,000 mark had eluded the blue chips the longest. Until Wednesday, the average hadn't closed above that mark since Sept. 14.
The market obviously isn't breaking through or testing such important figures -- which are known in the market as technical support levels -- all by itself. It has key fundamental factors in its favor, including a healthier-looking economy and prospects for improved profits.
The catalyst for a 342-point surge in the Dow on Wednesday, for example, was the Federal Reserve's 0.5 percentage point interest rate cut, its fifth such reduction this year.
A report showing the economy is strengthening also helped boost the market. On Thursday, the Conference Board reported its Index of Leading Economic Indicators -- a key gauge of future business activity -- rose 0.1 percent in April, advancing after two straight monthly declines.
However, psychology controls the markets swings as much as economic fundamentals do. Investors use big, round numbers like 11,000 to make trading decisions as much as they depend on evidence of a sound economy and growth in profits and sales.
"There are a lot of great fundamental things going on in the marketplace. But you have to have technical support to back up the fundamentals," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.
Lydon, whose firm manages about $70 million for private clients, has his own figure in mind: When the S&P 500 hits about 1,300, he plans to put more of his clients' cash back into the market. Since October, Lydon has kept half the assets in clients' growth portfolios in cash and the other half in stocks.
"If you have technical support to back up fundamentals it helps investors become that much more confident and they will put more money to work," Lydon said.
Strong fundamentals, however, are what drove New Yorker Brian Kennedy on Monday to make his first stock purchase of the year, buying 100 shares of Transmeta at about $11.50 a share after reading good news about the chip maker.
"I was just in a buying mood and was looking for something to justify it," said Kennedy, 29, a public relations executive. "It seemed like the time to get back in after for once getting a positive outlook on a company."
Numbers and fundamentals aside, the market does have history in its favor, and it bodes well for an upward trend. Historically, the market has started to turn higher about six months after an initial rate cut by the Fed. The central bank made its first cut on Jan. 3.
Corporate earnings also are expected to improve, probably in the fourth quarter, said Kevin Caron, associate strategist at Gruntal & Co.
Generally, Caron said, earnings for companies in the S&P 500 begin to turn around about a year after businesses and analysts begin lowering profit forecasts. Earnings warnings have been chipping away at the market since last year's third quarter.
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