THE eyes of Wall Street are now riveted on the Dow Jones industrial average - and the dizzying heights of a landmark 3,000-point Dow. Never, in numerical terms, has the average of 30 major companies on the New York Stock Exchange advanced so high. But there is a risk the Dow will then flounder around that level for the rest of the year - or even fall back downward in a retreat.
``A number like 3,000 clearly has a deep psychological impact,'' says Larry Wachtel, a vice president of Prudential Bache Securities. But far more important than the number, says Mr. Wachtel, ``is the underlying momentum of the market.''
Some companies are reaching new highs in terms of their own stock value, says Wachtel; the important Dow Jones transportation average, which in part reflects the shipment of goods across the nation, shows signs of new strength; and finally, the trading volume of stock shares has been increasing in recent days. Such indicators taken together, says Wachtel, suggest ``underlying strength for the stock market in general.''
The Dow briefly flirted with a 3,000-point high Friday and stayed above that level most of Monday. But the well-known stock market barometer weakened in the afternoon, closing at 2,999.75, its third straight record high.
Analysts here say that the momentum behind the recent rise of the Dow is linked to elation that the Federal Reserve Board had decided to ease interest rates, even if only slightly.
Early last week Federal Reserve Board Chairman Alan Greenspan told Congress that the Fed was ready to ease rates to prevent tightening credit conditions faced by small and medium-sized businesses.
Some businessmen complain that banks have over-tightened eligibility requirements to obtain loans. Thus, on Friday, the Fed slightly eased rates.
Many stock analysts, particularly those who recall the relentless march of the Dow toward the 2,700 level back in the summer of 1987 - before the market crash in October of that year - say that getting into the lofty 3,000 stratum is somewhat scary.
``You have to look at the stock market at this point in two ways,'' says Dennis Jarrett, senior vice president with Kidder, Peabody & Company.
``In the short term, there could be some profit-taking in the days ahead.'' That would mean, says Mr. Jarrett, that there might well be a momentary drop in the Dow, as investors cashed in some holdings.
``But in intermediate terms,'' looking ahead to the rest of this year, Jarrett says, ``the direction of the market is solidly upscale.''
JARRETT sees the Dow reaching 3,350 by September or October.
During the next month or so, the Dow should reach the 3,100 level ``even without the help of lower interest rates,'' says Leo Grohowski, director of equity portfolio management for Marinvest, Inc., an investment house. For now, the key to the market is not just interest rates, but corporate earnings. And based on preliminary earnings reports, ``the market likes what it is seeing.''
Still, for the Dow to move substantially higher, such as past the 3,100 level, there will have to be a major decline in interest rates, says Mr. Grohowski.
Not all market watchers are currently sanguine about the Dow - or the economy. ``I have to admit that I'm far more nervous than most analysts,'' says James Stack, editor and publisher of InvesTech, a market newsletter published in Whitefish, Mont. ``This is a blue-chip [stock] market. There's a flight to quality stocks underway. But a flight to quality doesn't usually come in the early stages of a bull market. It comes towards the end of such a market.''
Mr. Stack, for his part, believes that by pre-announcing its decision to ease rates, as occurred last week, the Fed was clearly sending a signal that it would take only limited steps to ease credit and that there would be no substantial shift in monetary policy.
Thus, Stack says, while the market will probably lift above the 3,000 level, it will probably wobble around a little, moving up and down in a pattern of doldrums. And there is a danger, Stack says, of a downward retreat in the Dow, as investors realize that the Fed will not be able to accommodate substantially lower rates.