Investors had another reason to celebrate the United States Independence Day in 2014.

During the week ended Friday 4th July, the Dow Jones Industrial Average crossed the 17,000 level for the very first time.

The DJIA or ‘Dow’ as everybody calls it, is an index of 30 very large companies based in the United States. It is not as comprehensive as the S&P 500 index in terms of representing the whole US economy but it does contain a fairly diverse group of the very bluest blue-chips.

The depths of the credit crunch as far as the world stock markets were concerned occured during 2009. The lowest value of the Dow index during this difficult time was about 7500. This means that in 5 years, the Dow has risen by about 10,000 points or by about 125%. In other words, it has more than doubled.

So far, so good for long term investors. Anybody who started investing during the past 5 years would have made significant gains. Even those who were invested before and during the credit crunch have probably recovered all of their paper losses.

This shows the benefits of investing on a long term basis and most importantly shows that the best gains are presented to those who were prepared to invest at the depths of the bear market when many other people had capitulated. A classic example of “buy-low”.

So, is the 17,000 level actually important or not ?

In reality the 17,000 level is not that important – its technically no more important that 16339 or 15482 or any other random number. However, the stock markets are based on the collective thoughts and actions of millions of people who are buying and selling every single day. Round numbers like 17,000 tend to gain attention from the media and inexperienced investors. The extra exposure often creates a virtuous circle…

New investors suddenly discover that the market doubled over 5 years and gain confidence to start investing. Other people who had been burnt by the credit crunch also start feeling comfortable and they too start investing again – very much like a new investor. Many other people start dropping their guard and join in with the investing party. They all expect further gains to occur.

However, we have to be careful. Its quite possible that the markets could be near a major ‘top’ – after all they have more than doubled over 5 years. It could be that the markets might just move sideways for a long time or even drop. The 17000 level for the Dow could end up being a resistance level. Nobody knows for sure.

The main point is that you should not become too attached with round numbers nor expect that the next higher round number will be reached. You should however be aware that millions of others do attach importance to these numbers so you need to perform your own due diligence to see whether a round number is likely to be a market top (when markets become over-valued) or whether they will continue to rise (when markets are fair or under-valued).