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Here's what may short-circuit Dow 17K

With the Dow creeping up on 17,000, the sense is that traders will push the benchmark index up and over that level sometime this week. So … what happens IF?

Well, it could go a number of ways: We could kiss it, which might bring out some selling interest, causing the move to stumble and pull back. We could kiss it and then push up and through as the momentum guys jump on board, causing a renewed level of excitement . Or, we could kiss it and then churn — not having the momentum to move ahead, but nor running into any significant selling pressure to cause a pullback.






Trader on the floor of the New York Stock Exchange.
Getty Images
Trader on the floor of the New York Stock Exchange.

Either way, you cannot discount the idea that a round number like Dow 17,000 will cause investors to stand up and take notice. If for no other reason, it is a big round number, another milestone in a market that remains suspect.

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Here's what happens: The media will highlight it, put in in the context that the market has tripled since the depths of the crisis. They will present it in such a way that it will cause investors to re-think their investments or their investment philosophy — it will remind the public — especially the ones that have chosen to "sit it out" -- that the market, in fact, keeps going up. Have they missed it? Have they been too cautious?

The truth is, it's only a number. It should be meaningless, but, in fact, it may not be. Traders and investors try to make sense of the markets. They measure it by using numbers and big round ones usually cause a bit of excitement, which can then lead to increased buying by the retail investor.

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These milestones are mostly psychological - significant only because they can cause real emotional reactions. My guess is that Dow 20,000 will be the real emotional ringer; Dow 17,000, not so much. But either way, emotional reactions tend to become infectious, feeding on itself where buying begets more buying, causing a herd-like reaction. The question then becomes: Is the herd-like reaction the right reaction?

My sense is that Dow 17,000 will be met with a yawn. Skepticism, really, as this has been the most hated rally in recent times. With every reason to remain cautious, the market discounts and moves higher (with the help of the Federal Reserve and other central banks). The move higher — caused by easy monetary policies around the world, record artificially low interest rates, advancements in technology which have streamlined businesses while creating a lot more unemployment — taken together cause many investors wonder: Would we be trading at Dow 17,000 if monetary policy and interest rates were normalized?

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This week is filled with a slew of initial public offerings, which is sure to draw capital away from the broader market. Dow 17,000 may get short-circuited this week as a result. In addition, the increasing geopolitical instability may prove to be a roadblock in the near term. Either way, if we do challenge it, then I suspect that it will draw out more institutional selling, capping out any immediate push higher.

Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.

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