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

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

It also didn't hurt that crude oil futures briefly dipped below $60 a barrel on Monday. Oil prices have fallen by more than 20% since the July peak above $78 a barrel; thanks in large part to rising global inventories.

While positive economic data is a good sign for penny stock investors, why should you care that the DOW Jones neared an all-time high. And what does it mean that the DOW hit 11,718.45?

The Dow Jones Industrial Average is an index of the stock market. And it's calculated by taking the prices of 30 of the largest companies in the United States, often called 'blue chips'. While the Dow is the most frequently used index, there are several other market indications such as Standard & Poors (S&P) 500 Index.

The Dow adds the prices of these 30 stocks together; they take the sum of all the prices and multiply it by (as one economist notes) a 'fudge factor' to take into account stock splits and changes in the index.

A 'fudge factor' is used because, from time to time, they change the membership in the Index. For example, if a company disappears in a merger or if they decide that another company is more representative, then they need to change the fudge factor.

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

What does it mean when the Dow hits a new milestone or encroaches in on a previous high? It basically means that investors are putting their money where their mouth is and voting with their wallet. And they think the United States economy is doing well.

Stock prices, whether they're penny stocks or blue chips, are often considered a leading indicator of economic behavior. After all, investors invest in the stock market when they expect the economy to do well and when they expect companies to be earning lots of money.

For better or worse, there is also a psychological factor at play here too. Yes, people buy more when they think the economy is doing well. At the same time, penny stock prices can be skittish because stocks prices are based on people's expectations of what future earnings should look like.

Right now investors are in a good mood. But the crowd psychology can change overnight if news comes out that makes investors think that the world is going to be different than what they thought it was going to be.

One market strategist said he doesn't see the rise in stocks as being short-lived given that the three-week run-up has been based on a range of events.

Another market strategist said he doesn't expect the stock market's gains will last. "I would preach a little caution here," he noted.

And being cautious isn't always a bad thing. I'm always amazed at how aggressively some penny stock investors jump in when the markets are going up. Clambering for a seat on the bandwagon seems more risky to me than getting in when prices are down.

Buying a great penny stock when sentiment is down is a lot better than buying in when speculation and momentum is sending it higher. While the Dow may hit a new record closing, a corrective pull-back means that some bargains are just around the corner.