- The Dow is a collection of only 30 stocks. 30 stocks is not necessarily representative of the market as a whole.
- Survivorship bias – in the past years stocks ha been added to and removed from the Dow. Presumably, good stocks have been added and poor ones have been removed. Microsoft is on the Dow, for example, and while the Dow is where it was at 6 years ago, Microsoft is only 50% of were it was 6 years ago.
- Inflation – the value of $11,722 today is worth less than it was six year ago. Inflation has eroded the buying power of the dollar, so adjusted for inflation the market is still a little ways off its high.
There are better indexes to check other than the Dow to gauge market strength, like the SP-500, Nasdaq Composite Index, Russell 1000 or Russell 2000, SP-600 Small Cap Index and so forth. Still, the Dow at 11,722 represents an important psychological level that cannot be ignored and I’m watching it closely.
It’s not enough for the Dow to simply poke its head above is all-time high. It has to close above it and stay above it for a period of at least a few days.