Dow All Time High: Bulls in Command, But For How Long?

On Tuesday the Dow Jones Industrial Average opened at a record high, surpassing its October 2007 pre-crisis apex of 14,165. An hour into trading at 10:30 AM EST, the Dow was up 133 points (0.92%) to 14,258. After more than four years of massive asset purchases via quantitative easing by the U.S. Federal Reserve, stocks and commodities have seen their prices rise steadily since the housing market crash of 2008, which triggered a massive collapse in securities backed by subprime mortgages. 

U.S. unemployment still remains relatively high at 7.9% (while the U-6 unemployment rate is at 14.4%). The latest surge in equities demonstrates that stocks are not always a reliable indicator of overall economic health or economic mood, and the rapid rise of stocks should give investors pause. Hedge fund manager Stan Druckenmiller of Duquense Capital told CNBC on Tuesday, “The party can continue for awhile, I don’t know when it’s going to end but my guess is its going to end very badly.” He said the rally may be in the seventh or eighth inning. 

From a long-term technical perspective, the Dow's chart should not be too much of a cause for concern. While a correction in the near term seems quite imminent, the five-year chart of the DJIA is encouraging:


The DJIA has experienced a steady rise and looks to have good support on the trendline begun at its 2009 lows. Right now, the best thing that could happen to stocks for the long-term is a short to medium-term pullback before the market overheats. Continued uncertainty over sequestration cuts, a looming debt ceiling battle, and continued euro zone drama could provide the impetus for investors to sell in May and go away.