Subprime Crashes Dow Party

Traders seem to be drawing a line in the sand at Dow 14,000.

The blue chip index flirted with the 14,000 mark again Tuesday, but the rally couldn't sustain itself into the closing bell. Perhaps there's just too much rumbling below in the credit markets to justify such a cork-popping event, even with a growing list of strong earnings reports and news of more mergers.

After trading as high as 14,021.95 intraday, the Dow Jones Industrial Average marked yet another record, gaining 0.2% to close at 13,971.55 and the Nasdaq Composite hit a new six-and-a-half-year high, closing up 0.6% at 2712.29. The S&P 500 slipped 0.1% to close at 1549.38 after trading above 1555 intraday.

"We know the problems out there about subprime and the credit markets, we just aren't sure of the lag time between events and a view into what the effects will be," says Art Hogan, chief market analyst at Jefferies & Co.

Indeed, traders spent much of the day chattering about the true losses at two Bear Stearns(BSC Quote) hedge funds -- the High-Grade Structured Credit Strategies Fund and its sister vehicle, High Grade Structured Credit Enhanced Leveraged Fund. In March, the more highly levered fund had $638 million in equity, and the less levered fund had $925 million, according to The Wall Street Journal.

The funds' manager Ralph Cioffi and his team at Bear have been trying to "mark to market" the subprime securities that primarily make up their collateralized debt obligations -- pools of loans and bonds backed by subprime paper. Insight into how much these funds are actually worth and how they priced these assets will help the rest of the market assess the potential damage at other funds, and the potential liquidity-drying ripple effects.