The Dow Jones Industrial Average ($INDU) on Wednesday crossed the technically meaningless but psychologically soothing 12,000 level for the first time since June 2008, but closed just shy of that plateau.

The blue-chip average hit a high of 12,020 at one point in the session before finishing at 11,986, up 8 points, or 0.1%. The market traded in positive territory for most of the day, bolstered by fourth-quarter earnings reports, surprisingly strong new-home sales and the Federal Reserve's commitment to its $600 billion bond-buying program.

The broader S&P 500 ($INX) added 5 points, or 0.4%, to close at 1,297. The tech-heavy Nasdaq Composite ($COMPX) gained 20 points, or 0.8%, to finish at 2,740.

Markets Remains Overbought

The Dow stands just 14 points short of a 12,000 close, but after such a hot run in so short a time, enjoy this level while it lasts. Markets don't move in a straight line, and plenty of indicators suggest stocks are due for a pullback -- or even a full-blown 10% correction.

Comprising just 30 stocks, the Dow isn't representative of the broader market. That's why investors use the S&P 500 as the default proxy for U.S. equities. Still, the Dow is the oldest and best-known index -- and probably has more impact on individual investors' perception of the market's health than any other benchmark.

When the Dow crosses these five-digit, even-number levels, folks on Main Street are more inclined to move some of the money they've plowed into bond funds over the last three years back into stocks. Such is the irresistible allure of rising prices.

That's not necessarily a good thing. Before Wednesday's action the Dow last crossed 12,000 on June 19, 2008 -- and that was on the way down. The blue-chip index first broke the 12,000 barrier on the way up on Oct. 19, 2006. And it's criss-crossed the level plenty of times in between. See the chart below.



But don't be surprised if the level doesn't hold. On a technical basis, the market remains overbought and investor sentiment is dangerously bullish. Sentiment is actually a contrarian indicator. When everyone is pessimistic, all the sellers have already sold, the thinking goes, setting stocks up for a rise. The converse is also true. When everyone is roaringly bullish, all the buyers have already bought -- and stocks are primed for a fall.

That's why even the bullish and profitably prescient Ed Yardeni is cautioning clients that sentiment is oh-so-close to correction territory. The president of Yardeni Research called the intraday bottom of the bear market when the S&P 500 hit 666 on March 6, 2009. It's up more than 90% since then.

Yardeni Still Bullish on Stocks

Yardeni remains bullish on stocks, but as he cautioned clients today, the Investors Intelligence Bull/Bear Ratio rose this week to 2.9.

"In the past, readings around 3.0 suggested that the investing class was too bullish and that the odds of a stock market correction were high," Yardeni writes. "As a result, even bullish investment strategists are hedging their bets by warning that the market is overdue for a correction."

A 10% correction would eventually shave 1,200 points off the Dow, bringing it down to 10,800. If that scenario plays out, the next key psychological level on the Dow might be a reprise of 11,000 rather than 13,000.

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Robert & Lisa

Our socialist public educational system has indoctrinated our children into believing capitalism and freedom is bad and socialism is good. If Socialism is so good, why does the long time socialist government of Mexico boast of being the #1 producer of silver, plenty of oil, and the richest man in the world, yet 99% of their people are in the poverty level making an average of less than 6 dollars a day. Corruption is rampant. The evil, ultra rich see Mexico and want to implement socialism here, where they can have all of the wealth and power and the middle class will now be among the poor. That is what their Demoncrat puppets in the white house and senate are doing to us.

January 27 2011 at 4:17 AM Report abuse +5 rate up rate down Reply
ultraz2

Mandatory flat tax on industry of 15 to 20 percent--no deductions --no loopeholes ---no off shore tax avoidance of any kind.

January 27 2011 at 3:39 AM Report abuse +1 rate up rate down Reply
1 reply to ultraz2's comment
Robert & Lisa

How about that for everyone. We have a couple of stores. We don't just offer discounts for one or two small groups and thereby discrminate against other groups. We offer the same fair discounts to all. Flat tax for everyone.

January 27 2011 at 4:09 AM Report abuse +3 rate up rate down Reply
Samir semaan

What people don't understand is the work of two years of investing in this country's economy that people change their outlook about this economy and the stock market this time will not see correction the time for correction has finished and the dow specially will reach to 12000 points and above and manufacturers will continue to make profit without affecting productivity and housing will thrive to a new level that construction will soon start back.

January 27 2011 at 1:37 AM Report abuse -3 rate up rate down Reply
bobgedeon

I have been out of the market for 2 years. I didn't like what I saw in the economy. I just got back in. China, India and the rest of the world will not slow down. The steel workers are hiring.All of the young engineers I know have been hired. This new stimulas is the real deal! Not money given to the banksters. Inflation will come with the jobs. I should have bought GE at $5 but $20 will due. Hot money is here! The world will grow at one hell of a pace! Just like Oil is munipulated, watch for grain prices to be fixed lower to stop 3rd world unrest. In addition, every pullback over the last 2 weeks has generated buying.I was waiting for copper,CSSO,FCX, to drop 2% more. I got burned today, it went up 4%.

January 27 2011 at 1:05 AM Report abuse +1 rate up rate down Reply
1 reply to bobgedeon's comment
bobgedeon

Sorry, its Southern Copper ,SCCO.

January 27 2011 at 1:08 AM Report abuse +1 rate up rate down Reply
simpsongrsm

Obama simply "does not get it" - has surrounded himself with anti-business and wealth redistribution advisors - so as to re-enforce his own Socialist view points. Obama is not moving to the center - it is simply not within him as he is a committed far-left liberal. The country is headed towards a financial abyss and there is little the Republicans can do except to slow down the train wreck to a minor degree. Bush was a sub-par President, a great disappointment and on many occasions - a bumbling fool. However, compared to Obama - Bush was Einstein!

January 26 2011 at 11:42 PM Report abuse -1 rate up rate down Reply
1 reply to simpsongrsm's comment
richard

Oh yeah, Einstein all right, he was also a war hero who tried to keep us out of Iraq!

January 26 2011 at 11:51 PM Report abuse +1 rate up rate down Reply
richard

Oh yes, big improvement in my 401k the past two years. Thank you Democrats, for saving the American economy from disaster!

January 26 2011 at 11:09 PM Report abuse -1 rate up rate down Reply
darinw40@mail.com

Companies are filing false earning statements from 'cooked books" and manipulating the data to make themselves look profitable...waiting for the truth to come out and this market crashes into the ground

January 26 2011 at 10:17 PM Report abuse +1 rate up rate down Reply
jbluhm1951

The Dow is way over bought. There are not enough reasons for the Dow to be at these numbers. Look for more than a 10% correction. Our country is so far in debt. This President has spend more than all our other Presidents combined, including G.W. People should be quaking in their boots, but our leaders and most Americans are like, oh well, things will be ok. They will not. Right now our debt may never ever be repaid. Taxes will have to double and spending will have to stop, and the government will have to all but shut down for us to balance the federal budget. This President will bring forclosure on our children and grand children, and great great grandchildren. Our country will be a socialist country, and our President praised his model, China just last night.

January 26 2011 at 9:47 PM Report abuse +2 rate up rate down Reply
1 reply to jbluhm1951's comment
prognesub

Without the near-daily cash infusions from the Fed where would
market be? I think people who want the Fed to end QE are wrong.
The economy is too dependent on newly-printed money for buying
bonds; take that away and CRASH big time.

January 27 2011 at 3:49 AM Report abuse rate up rate down Reply
pm0501

Watch the markets Thursday January 27th. The DOW will lose at least 150 points. Believe me, every time the DOW hits a milestone like reaching a new high on a rebound, sellers line up!

January 26 2011 at 5:12 PM Report abuse +3 rate up rate down Reply
1 reply to pm0501's comment
wsjalerts13

Keep your day job buddy!

January 27 2011 at 5:06 PM Report abuse +1 rate up rate down Reply
tsafa

I would be will to suffer a recession and loss of wealth for another two years with will get Obama out of the White House and turn the Senate over to Republicans.

I don't care about money as much as I care about my individual rights... particularly my Gun Rights which the Democrats are hell bent on taking away.

January 26 2011 at 4:10 PM Report abuse +3 rate up rate down Reply
3 replies to tsafa's comment