As the Dow breaks 14,000 expert financial bloggers are getting bearish

The recent movement of the Dow Jones Industrial average has been described by analysts as “stunning.” An increase in consumer spending coupled with relatively upbeat quarterly earnings reports has seen the Dow rise from 13,000 to 14,000 in a mere 57 days. 

Financial Post Trading Desk Blog offered some statistical insight into the Dow’s recent surge. “Monday (July 16) marked the best four-day gain since mid-March 2003,” while also observing that “this marks the 52nd record close since the beginning of October 2006 and the 30th this year.” The meteoric rise of the Dow has seen an increase of almost 12% in the past six months.

However, a quick look at a number of expert financial weblogs indicates a decidedly sombre outlook. A number of business blogs believe the market will soon be heading in the opposite direction.

24/7 Wall-street, a widely-read financial blog, is convinced that a market correction is just around the corner. In fact, they commented that recent activity in options trading could signify the onset of a bear market that could see indexes decline by 10% or more. “It has been four years since the market dropped 10% but slow earnings and problems in the sub-prime market could converge to take prices down.”

While the author of the post was insistent that a drop in the market wouldn’t signify an immediate economic downtown, it could play a significant part in lowering consumer spending which would then lead to a recession. “Coupled with falling home prices and higher energy costs, a sharp fall in stock prices could make the mid and high-end consumer pull in on spending, taking the economy's biggest engine out of play.” The final sentence of the post offered a stern warning to bullish investors, “Despite rumors to the contrary, the market can't go up for ever, and there are increasing signs that it could go down a lot.”

Trader Tim, an expert blogger devoted to daily market commentary, mused openly about the media’s obsession with arbitrary numbers as financial benchmarks “of course, television pundits were completely obsessed with the Big Round Number. If and when we actually close above 14,000, it will be about 3 seconds before someone writes an article entitled, ‘Next Stop: 15K!’ Yawn.” In fact, the author of the post declared the current state of the market to be “overpriced.”

Peridot Capitalist- a stock market analysis blog, disputes whether the 14,000 number is indicative of overall market health, “some of you may not be aware of this, but the Dow Jones Industrial Average is not market cap weighted. Instead, it is share price weighted. This serves to make its moves pretty much irrelevant in terms of gauging the market's overall health.”

Chad Brand, the author of the post, inferred that the Dow is so slanted towards industrial stocks it is only reflective of growth in the financial sectors dominated by the Dow. In his post, Brand states “in fact, materials and industrials account for a whopping 35% of the Dow Jones Industrial Average due to their high share prices.” Brand ended his post by saying, “Dow 14,000 is a nice round number, but it really doesn't tell us a lot about the market as a whole, only certain sectors that dominate its composition.”

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