Dow 10,000 has finally arrived. Enjoy it while you can

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Here's a headline for you: Dow Jones Industrial Average ($INDU) crosses five-digit even number, closes with ugly decimal points tacked onto the end.

Don't get us wrong: Dow 10,000 has arrived, so pop out the champagne. But please indulge in just the slightest of sips. Breaking the key psychological level of Dow 10,000 is one thing. Holding onto those gains is quite another.

Joe Clark, managing partner of Financial Enhancement Group, is chewing his fingernails with the Dow above that long-lost level. "Just hope that it holds," he says. "I don't buy that the economics match the market results all."
Now that we've breached the 10K barrier, Clark doesn't begin to pretend what happens next. But he has a suggestion: "Pray! Most importantly, be prepared to react to what the market gives us."

Amen, brother.

As we have written before, getting to Dow 10,000 is nice and all, but, jeez, we have seen this show before. The Dow last hit 10,000 (on the way up, that is) six years ago. And we first broke the 10K barrier a full 10 years ago.

Buy and hold? More like buy and bust.

Fortunately the fundamentals underpinning the buy-and-hold investment philosophy are nowhere to be seen in this rally. Call it sentiment, momentum or technicals, the market is going higher because it needs to go higher -- if only so that asset and portfolio managers can qualify for year-end bonuses. Or stay off the unemployment line.

After all, fund managers are held accountable to their benchmarks. It's awfully hard to justify active management fees if you can't outperform, say, the S&P 500 ($INX). For goodness sake, they have computers that can match that thing. Thus we have an ocean of market participants living in fear of missing out on any gains. That fuels momentum investing, where investors chase returns, buying high and selling higher so as not to be left behind.

That's the only logical explanation for the market's admittedly welcome madness. As David Rosenberg, chief economist and strategist at Gluskin Sheff (and formerly of Merrill Lynch) wrote so distressingly, stocks are overpriced to the point of tech-bubble levels.

Last Friday, Rosie dumped more frigid water -- largely ignored -- on this rally. "By some measures, the S&P 500 is already trading at valuation levels that would ordinarily be consistent with an economic expansion that is five-years old as opposed to a recovery that, at best, is in its infancy stages," Rosie told clients.

After slicing and dicing his way through reams of the most soporific data, the economist came to the conclusion that stock prices have way overshot their future earnings growth.

"Going back 60 years, there have only been 14 months when the trailing [price/earnings] multiple was as high as it is today, and that covers 10 recessions," Rosie wrote. "This implies that the market is in the top 2 percent expensive terrain historically, and those other times basically covered the tech mania of a decade ago."

So enjoy Dow 10,000 while you can. The market has a vested interest in having it stick around for awhile. (Or at least until asset and portfolio managers close their books on October 31 or December 31.)

But Dow 11,000? Well, just make sure you go potty first. It looks to be a long, slow trip.
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