After weeks of flirting with it, the Dow Jones Industrial Average finally broke through the 20,000-point mark for the first time in its history on Wednesday. Dow 20,000 had become almost a mystical number, and toppling that nice round figure is predictably garnering hundreds of glowing headlines. But the real headline is that the market finally broke free of its historically narrow trading range. It could be the next big step toward a new bull market.
As I wrote earlier in the week, market volatility has been at its lowest level in decades. Since the beginning of December, the Dow has been confined to an extremely tight 1.2% trading range—by far its narrowest range in 60 years. After six weeks of running in place, it was just a matter of time before a breakout occurred. The only question was, which way would stocks break when the inevitable breakout arrived?
It appears we have our answer. The Dow has jumped more than 300 points in the last three trading days, and the S&P 500 broke above its own six-week resistance in the mid-2,270s. That kind of decisive breakout is a bullish indicator, and perhaps evidence that a new bull market is underway.
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Our growth stock expert, Mike Cintolo—who doesn’t typically like to project what could happen with stocks, preferring to invest based on current momentum—has been saying for a while that we’re in the early stages of a new bull market. In fact, he wrote about it last week. Here’s an excerpt of what Mike said:
“I’ve tried to avoid using too many labels on the market. It’s usually better to just say “uptrend” or “downtrend” and leave it at that.
“But, today, I want to take a step out on a limb and say that I think stocks have begun a new bull market. That’s right: Despite all the talk you hear about the aging bull move, I think stocks might have started a sustained run higher—a run that I believe can last many months, if not a couple of years!”
Mike went on to list 10 reasons why he thinks it’s a new bull market. Reason No. 1 was this:
“The S&P 500 made no net progress from December 2014 through October 2016, nearly two years of no progress. And now, of course, the index is at new all-time highs and freewheeling. To me, this looks like a huge base breakout—and after two years of slopping around, it’s likely that the advance will last more than just two or three months.”
The same could be said of the Dow, whose chart looks a lot like the S&P’s. Now that both indexes have broken higher again, Mike’s thesis that a new bull market has arrived looks even more prescient.
So while Dow 20,000 makes for attention-grabbing headlines that can be easily summarized on the front page of USA Today, the more pertinent story as far as investors should be concerned is that the market finally broke free from its six-week malaise. And because that breakout was to the high side, it could be the next step toward a much longer-term rally.
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