For many months traders/investors have been trying to understand the markets move to current economic conditions, many have wondered how a market can continue to rally in face of a weak economic rebound. First one must understand that the current DOW move back to 10,000 level is basically not the same representation of the 2008 market. The 2008 move to DOW 10,000, and the current move to DOW 10,000 does not reflect the same stocks that made 2008 highs. If one were to look at the original DOW stocks in 2008, the DOW would NOT be at a new high. The indexes conveniently remove the weakest stocks that drag the indexes down to lower levels and replace them with stronger stocks.

The 2008 DOW index is well below the 10,000 level. When the DOW replaced the three weaker DOW components of GM, C, and AIG, with stronger participants, it allowed the indexes to make new highs quicker. As Traders we are taught to “dump the losers” and “ride the winners” this holds true for the Indexes as well. The indexes all rebalance every few years and some more than others. This is one reason why you can see an index improve and march to new highs when the economy is not in sync. Technicals get us in the game early and fundamentals follow breathing life into long lasting trends and mutli year bull markets. We have seen the early technical signs and if we are in a new bull market cycle that is to last for years (3 -5) then we should see improvements in the economy as the market continues its uptrend. If the fundamentals cannot support the move, then the market will begin to discount this information and the probabilities increase we could see weaker prices in the future.