360 Degrees of the Dow

Editor's Note: In this edition of "360 Degrees," RealMoney commentators cast a jaundiced eye on the rise of the Dow Jones Industrial Average toward a new high. What does it mean for investors and the market, and what is being missed amid all the hoopla?

TheStreet.com has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better-informed investment decisions. In that spirit, we bring you "360 Degrees."

"360 Degrees" is a feature that takes advantage of our varied stable of contributors to RealMoney, who offer analysis of stocks and the markets from all angles -- fundamental vs. technical, short-term trader vs. long-term investor.

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Leaning a Little Bearish, by Cody Willard

Originally published on RealMoney on Sept. 27 at 11:11 a.m. EDT

It's a big morning in the markets, at least according to the media. Like Rev Shark, I'm rather dismayed at all the attention being paid to the Dow Jones Industrial Average's progress toward its all-time high. Go to any financial-news Web site and you'll see a screaming headline in big font about how the "Dow Closes In on Record."

Rather than focusing on the symbolic record, I'm going to go TA on you. Will the technical analysts hate the Dow's chart if it can't push through this level with some gusto? Won't they call it a long-term failed double-top or something?

Gun to head, I'm starting to get bearish for the near term again. It sure seems like the bulls have all but declared victory and clear sailing for as far as the eye can see. And the bears are in hibernation, scarred from the big moves since July and scared to talk their book, much less to put on more shorts.

I'm looking at some index puts, probably in the Nasdaq or the Semiconductor HOLDRs (SMH Quote), to hedge against my long exposure.

At the time of publication, the firm in which Willard is a partner had no positions in the stocks mentioned in this column, although positions can change at any time and without notice.

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Rest and Resume, by Dan Fitzpatrick

The daily chart shows an advance that's a bit long in the tooth. After bottoming in July, the Dow has run almost 10% without a major pullback. But there is no denying the uptrend, and all we have is conjecture about a potential pullback. But with that said, I see the greatest short-term risk being to the downside. As I look at the price action, I just don't see prices continuing to move higher without a rest. A mature price pattern like this only occurs after a period of sustained buying. So who's left to buy? Short term, I'm waiting for a pullback.

The weekly chart confirms this analysis.

I've drawn a "V" around each major bottom of the past few years. Notice how subsequent price action has almost always offered a second chance to buy at lower levels. I think the challenge for traders is to avoid being so bullish after a prolonged uptrend.

Yes, the trend is higher -- but as I have said many times before, the key question to ask is simply, who is behind me? At this point, not too many potential buyers are likely to be hanging around compared to the number of potential sellers.

But let's zoom out to a monthly time frame and look at the big picture.

The monthly chart is quite bullish. From late 2004 through 2005, the Dow pretty much traded sideways, creating a long period of low volatility. This 12-year chart shows that such low volatility has been fleeting. Given this, I expect this new uptrend to last through 2007.

However, the Dow is currently right at the upper end of the channel. I think we'll get a better chance to buy during the next month or so.