Dow 20K - It's All In Your Mind

Despite the approach of Christmas Day, the beginning of Hanukkah and the start of a new year, some investors are finding joy and excitement elsewhere: the Dow Jones Industrial Average. However, there are those who aren't in the same spirit, wondering what exactly is the true meaning of Dow 20,000.

On Tuesday's episode of Benzinga's PreMarket Prep morning show, temporary holiday co-host Spencer Israel asked special guest Tim Anderson, managing director at TJM Investments, why anyone should care about Dow 20,000. Isn't it just an arbitrary number?

Investor State Of Mind

Anderson's assessment, "I’m not going to disagree that it’s an arbitrary number." However, he amended that by saying even arbitrary numbers can shape the way investors behave. "It means absolutely nothing in terms of a valuation metric. But I think for market psychology it means a lot, psychology happens to be very important for the market right now."

The take On Main Street

PreMarket co-host Dennis Dick also made the point that, while the Dow may be low priority for investors, the public looks to the Dow as bellwether for the economy. "Most professional traders look at the S&P, but the general public pays attention to the Dow. The money at the bottom line comes from the general public, and that 20,000 means a lot to the public."

Anderson elaborated by pointing to the large number of dollar-sensitive stocks on the Dow, "When the dollar broke from its low about a year-and-a-half ago, the Dow got hit, which was largely attributed from that strength of the dollar. Look at the strength of the dollar now."

The post-election rally in the financial sector played a large part in the Dow's current position, Goldman Sachs Group Inc GS rally alone accounting for 21 percent of the Dow's gain since November 8.

Listen to the full discussion in the clip below.

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8–9 ET here, or catch the podcast here.