Stocks confront ceiling at big round numbers
After a rousing rally off the lows on Feb. 11, the law of big round numbers may finally be catching up with major U.S. stock indexes such as the Dow Jones industrial average and S&P 500.
The numbers in question are 17,000 on the Dow and 2000 on the S&P 500.
It’s not unusual for major indexes such as the Dow and S&P 500 that suffer steep downturns to have trouble breaking back above prior milestone markers in the market on the way back up.
In Wall Street-speak, it is called “overhead resistance.” Basically, what makes it difficult for the Dow to bang through an old key level like, say, Dow 17,000, is the fact that many investors were likely buyers of stocks around this level and so will use the rally back to old levels as a good time to exit their once-losing position, recoup their losses and get their cash back when they are back to even.
The same challenge faces the S&P 500 at 2000.
"Markets worldwide continued to rally since February 11th low; we’d expect a pause before moving higher," John Stoltzfus, a market strategist at Oppenheimer told clients in an early-morning note Monday.
Friday, both the blue-chip Dow and the large-company S&P 500 topped the 17,000 and 2,000 levels, respectively, although only the Dow closed above its key milestone.
The Dow closed up 63 points Friday to 17,007, while the S&P 500 finished up nearly seven points to close an eyelash below 2,000 at 1,999.99.
Stocks were propelled higher by stronger-than-expected economic data in the U.S. and higher oil prices, Stoltzfus wrote.
The Dow kicks the week off just 2.4% off its May 2015 record close and the S&P 500 was just 2.2% below its all-time closing peak.
If both stock indexes can break out above these key levels for good, it would be a bullish sign for the market and another sign of healing after the worst start to a year for stocks in history.
In pre-market trading about two hours before Monday's opening bell, the Dow was down 36 points, or 0.2% and the broader S&P 500 was down 0.3%.