19 Stocks for Dow Peak

Another reason that new highs are bullish is more subtle. When indices or stocks move into record territory, suddenly there are no bitter, longtime shareholders who have been waiting years to unload a losing position. At new highs, everyone is a winner, almost by definition.

With no overhang of losing positions to push through, stocks and indices start to look light as a feather. As more and more buyers are attracted to a dwindling supply of shares held fast by owners, the heightened demand blows prices higher and higher. It is not at all uncommon to see markets that tiptoe ever so gingerly to a new high suddenly sprint to unimagined levels once that threshold has been passed.

Here's an example: From around 1970 to 1982, the stock market traded in a range from around Dow 600 to Dow 1,000. It looked like it was going to break out several times -- in 1972, 1976 and 1981. But each time, the market collapsed like Lucy pulling the football away from Charlie Brown. When the move definitively higher finally transpired in the summer of 1982, amid much moaning and groaning that it was one more fake-out, stocks went into launch mode. From January to mid-May 1983 alone, the Dow went up 20% -- hitting brand-new highs virtually every week.

Time to Buy

The Dow Jones Industrials are only up a little more than 8% so far this year, but it seems like so much more because we've become accustomed to no return at all after a lackluster 2004 and 2005. Just imagine the frenzy that will emerge among your friends and co-workers if stocks move to a new high, and then keep on going until they're up 20% by mid- to late summer. You just know that all those people who were bragging about flipping houses and condos are going to be even more insufferable -- and incite a lot more speculation -- when they start bragging about their stocks.