Dow 5000 or 20000 – the classic fight between fundamentals, corporate earnings, interest rates and sentiment
Peter Oberois
Nov. 4, 2006

The market has severe bullish sentiment. Most players are bullish. The bears keep talking bearish cases and the bulls dump them as garbage.

In that situation two things can really happened. In happened in 1929, 1962, 1973 and 1987. In January 1987, the market players were extremely bullish. The market took off and reached astronomical heights above 2700 by August of 1987. And then cane the massive crash. Within two months Dow was back to 1700 level. At that time Fed was raising rates like crazy. The new Fed Chairman Alan Greenspan was calling the shots to establish his inflation fighting credibility.

When so many bulls are hovering around in the market, either the market will go up through the roof or collapse. What will happen depends on how much cash these bulls have and how much they can borrow to push the market higher. No one knows the answer to that question.

If the bulls borrow and put all cash to work for the market, the bubble in stock market can easily take Dow to 20,000. The fundamentals do not change though.

After the last bull has invested everything he or she has, the market will eventually topple. But that can take many years and even decades. This is because no one knows how much money these bulls have.

One thing is for sure, if the bulls have the resource they are going to take the market very high very fast.

On the other hand, fundamentals suggest, the market is ready to collapse. In that case it can go straight to 5000. The question is - does it go to 5000 now or after reaching 20,000?

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