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Traders Say Dow Topping 11,000 a Meaningless Illusion

Maybe it’s the cynicism that arises after a bubble-filled, lost decade in equities. Or perhaps it’s the fact that it holds no real technical significance for those on Wall Street. Either way traders could care less about the Dow Jones Industrial Average topping 11,000 for the first time since May today.

“The 11,000 marker matters to the White House only,” said Tim Seymour, hedge fund manager and founder of EmergingMoney.com. “No one else even cares about the Dow as a reference point for markets.”

The Dow average topped 11,000 after a weaker-than-expected jobs report caused investors to increase their bets that the Federal Reserve will restart quantitative easing that could keep interest rates low and lift asset prices. The Dow at 11,000 is not a bad headline for President Obama to have at the top of the fold in America’s morning newspapers tomorrow, instead of the longest stretch of unemployment above 9.5 percent (14 months) a new record.

“It’s great at creating an illusion of improvement in the economy, but it’s not keeping up with the rise in market inflation, aka commodities,” said Peter Boockvar, chief equity strategist for Miller Tabak. “Thus, everyone knows the Fed is single handedly juicing asset prices.”

The Dow average relative to the Reuters/Jefferies CRB Index, a measure of various commodity prices traders use to follow inflation, is actually trending steadily lower since June. This is because of the huge jump in prices that traders say signals value-eroding inflation is ahead. Corn , wheat and soybeans , key input costs for food companies, all surged today on a poor crop yield report.

Most traders use analysis of the S&P 500 Index , instead of the Dow, to make buying and selling decisions. The much bigger S&P 500 is weighted by market capitalization instead of share price, like the Dow. The exchange-traded fund tracking the S&P 500 – the SPDR S&P 500 ETF – is the most actively traded ETF out there, with nearly 196 million shares changing hands each day. The SPDR Dow Average ETF has an average daily volume of just 6 million shares.

The break above 1130 on the S&P 500 last month was more important than the round number reached by the Dow today, according to Carter Worth, chief market technician at Oppenheimer & Co.

“The 1130 level is important on the S&P 500 because it was the level at which intermediate tops in June and August were made,” said Worth. “When we finally broke out above said tops the market has moved higher and higher.”

He and other technical analysts look at previous highs and lows on securities to gauge where more supply or demand will come in as a bearish or bullish force. For example, if investors bought the market this summer with the S&P 500 at 1130, many were probably anxious just to breakeven when the market returned there in September so it was a good sign that they felt confident to keep the trade on.

Dow 11,000 “has no affect on investment strategy or fundamentals, but is a psychological factor that does have some relevance and offers comfort in what has been a difficult environment for equities,” said Stephen Weiss of Short Hills Capital Partners. “Dow 10,000 hats sold well, but I don't recall anyone buying Dow 9,990.”

* For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On Oct. 8, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (AA), (BAC), (GE), (GOOG), (INTC), (MON), (POT); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (BTU), (NUE); Finerman's Firm Is Short (IJR); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm Is Long S&P 500 Puts; Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (CVS); Finerman's Firm Owns (GENZ); Finerman Owns (GOOG); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (MSFT); Finerman's Firm Owns (POT) Calls; Terranova Owns (APA), (AAPL), (IBM), (OXY), (RSH), (UPL), (XBI), (JOYG), (C), (AXP), (SWN), (AGU), (EOG), (HES), (OIH), (ORCL), (SU), (VRTS), (FTO), (RIG), (PEP), (POT), (CRM), (CF); Terranova Owns (TBT) Calls; Terranova Owns (FFIV) Puts; Terranova Owns (FCX) Put Spread; Terranova Owns (JOYG) Put Spread; Terranova Owns (GLD) Puts

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
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For Rich Ilczyszyn
* No Disclosures

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