The DOW Nears Record High-What Does That Mean

They were trumpets proclaiming the Second Coming ... Only analysts sounding off about Dow Jones.

On Thursday, Wall Street surged higher, carrying the Dow Jones Industrial at 11,718.45, its highest close this year, and its second-highest close on record. Only 4.53 points away from its record high end of the 14th 11,722.98 January 2000.

of positive economic data and stable interest rates helped buoy the growing sense of optimism among investors. Investor enthusiasm was also bolstered by Federal Reserve Bank of Richmond that showed the region's economy strengthened this month.

also did not hurt that the oil futures briefly dipped below $ 60 a barrel on Monday. Oil prices have fallen by more than 20% from July peak above $ 78 a barrel. Thanks in large part the growth in global stocks

While the positive economic data is a good sign for penny stock investors, why would you care to Dow Jones close to all time high. And what does it mean that the Dow hit 11,718.45?

Dow Jones Industrial Average is a stock index. This is calculated by the cost of the 30 largest companies in the U.S., often called "blue chips". While the Dow is the most commonly used index, there are several other market indications such as Standard & Poors (S & P) 500 Index.

Dow added cost of these 30 stocks together, they are the sum of price and multiply it by (as one economist notes) "fudge factor" to take into account the state of division and changes in the index.

"fudge factor" is used because, from time to time, they change the membership of the index. For example, if the company disappears in a merger or if you decide that another company is an agent, then they need to change nonsense factor.

Despite all the mergers and changes over time, "fudge factor" helps the index comparable from one day to the next.

What does it mean when the Dow hits a new step or rising to the previous high? That basically means that investors are putting their money where their mouths and vote with your wallet. And they think that the U.S. economy is good.

stock price, regardless of whether a penny stock or blue chips, are often considered a leading indicator of economic behavior. After all, investors are investing in the stock market when the economy is expected to do well and when you expect the company to earn lots of money.

For better or worse, there is a psychological factor at play here. Yes, people buy more when they think the economy is good. Meanwhile, prices of penny stocks can be exciting, because stock prices are based on expectations about what future earnings should look like.

Now, investors are in a good mood. But the psychology of the crowd can change overnight if the news comes out that makes investors feel that the world will be different than what they thought was going to be.

One market strategist said he did not see an increase in stocks as a short-lived since it was three weeks ahead is based on the sequence of events.

Another market strategist said he expects the stock market's profits will last. "I would preach a little caution here," he said.

And being careful is not always a bad thing. I am always amazed at how aggressive a penny stock investors jump when the market goes up. Clambering for a place on the bandwagon it seems to me more risky than getting in when prices are down.

Buying a big penny stock when sentiment is down a lot better than buying when speculation and momentum sent him over. While the Dow hit a new record for May closure, correction withdrawal means that some bargains are just around the corner.