Why Dow Jones 30,000 Will Become Reality; But What You Should Know First

As many of you know, I’m a big supporter of equities as an investment over the long run, especially with small-cap stocks.

But I’m also pragmatic and feel you should always look to take some money off the table—especially after such strong advances in the stock market as we saw in the first half of this year.

But there are also those bulls like Ron Baron of Baron Capital who estimates the Dow Jones Industrial will reach 30,000 in 10 years and 60,000 in 20 years. (Source: LaRocco, L.A., “Dow Will Hit 60,000 in 20 Years: Ron Baron,” CNBC, July 8, 2013.)

While the estimates by Baron appear to be crazy at first glance, they are actually achievable at a compounded rate of 7.73% per year for the next 10 years and 7.46% annually to reach 60,000 within 20 years. For this to happen, everything related to economic growth needs to play out positively.

But in reality, there will continue to be ups and downs in the stock market.

While Baron doesn’t really believe in trading the market and advises a buy-and-hold strategy, I’m leaning more toward taking some profits on strong advances and buying on stock market corrections.

The current situation points to another possible buying opportunity to come in the stock market.

After a correction that drove the S&P 500 down more than five percent from its May peak, the stock market has rallied to narrow the decline to a mere 2.74% from the peak.

I really had hoped for and expected more of a correction in the stock market as a buying opportunity. I still feel there will be another chance to buy coming soon.

Take a look at the chart of the S&P 500 below. Note the ovals indicating the selling pattern, and the recent selling that was associated with the mini correction in the stock market.

Chart courtesy of www.StockCharts.com

My concern is that the S&P 500 has trended lower from its May peak, characterized by two straight corrections. If the index fails to rally back to between 1,660 and 1,680 in the coming weeks, we could see another relapse to below 1,600, based on my technical analysis.

I view another move below 1,600 as a potential buying opportunity; but be careful, as the index could falter to as low as 1,540.

While there will likely continue to be volatility in the S&P 500, the overall indicators remain bullish and I see stocks moving higher—but not at the same torrid pace as we saw in the first half.