Dow 4,000: Tall Fence for the Bulls

Are “millennium” marks really that big a deal for the Dow Jones industrial average? Fundamentally speaking, the answer is no. But as the Dow approached 4,000 last Wednesday--only to be turned back at 3,998--the old line about “psychological barriers” resurfaced on Wall Street.

The Dow, which ended last week at 3,953.54, also made three serious runs at 4,000 in 1994 and failed each time. Last week, with interest rates sliding and the broader Standard & Poor’s 500 stock index hitting new highs, the Dow finally seemed poised to punch through.

What’s the problem? Even though the Dow is made up of 30 stocks all moving independently of one another, some analysts say the index itself is so closely watched that it produces a natural “breath-holding” effect on the market as it nears a historic mark.

In other words, people begin to reconsider. “I don’t ever remember nearing a millennium mark without some investors saying to me, ‘Boy the market is awfully high,’ ” says veteran market strategist Hugh Johnson at First Albany Corp. in Albany, N.Y. “Everybody seems to find a reason to back away from stocks.”

The 1,000 mark was the Dow’s most torturous. That fence was breached for the first time around midday on Jan. 18, 1966, but at the close the Dow fell back to 994.20. It would not actually close above 1,000 for another six years--on Nov. 14, 1972--and then marked another 11 years before going through 1,000 decisively, in 1983.

In 1986 the Dow bided its time around 1,900 for much of the year before suddenly knifing through 2,000 in January, 1987.

The 3,000 mark seemed sure to fall in July, 1990, when the Dow hit 2,999.75. But that was days before Iraq invaded Kuwait. A bear market and Persian Gulf war later, the Dow finally topped 3,000 on April 17, 1991--and then remained mired near that level for seven months.

So what about 4,000? “We know it doesn’t mean anything,” says longtime technical analyst Justin Mamis at Tucker Anthony in New York. “But then you start to ask, ‘How come we know that?’ ”