| The Whitney Theater (Hamden, CT) marquee | | | | they want the markets to go up and up because |
| advertised movies for children | | | | it means more money. When markets hit |
| ("Gidget"..."The High and the Mighty"). Every | | | | successive days of positive returns, |
| kids matinee, the manager would pick a ticket | | | | investors get starry-eyed. We like it when |
| out of a large popcorn box. He would give the | | | | Neil Cavuto (among others) reports new highs |
| winner candy, free soda and popcorn, or a toy | | | | for the Dow (read " The Dow Jones Industrial |
| connected to the movie.One afternoon he read | | | | Average: Failing the Average Investor" by |
| the numbers on my ticket stub. The prize was | | | | Steven Selengut).Dizzying heights cause most |
| an air-pumped rocket. My friend Elly and I | | | | investors to miss subtle market moves. Stocks |
| went to an open field, pumped it as hard as | | | | indices must move higher on strong buying |
| we could, and let it go. It went straight up, | | | | volume. When markets reach a bench-marked |
| stalled, lost momentum, nose-dived and hit | | | | high level, getting past it will take three |
| the sidewalk.Stock Markets soar and crash | | | | times the average number of daily buyers.If |
| too. Stock Market traders sometimes become | | | | the price stalls at the bench-marked high and |
| kids with a toy. Every day the market pumps | | | | the buying volume is less than the daily |
| itself up. Indices spiral upward making many | | | | average, index prices decline."Don't worry." |
| giddy with kiddish delight; nobody wants this | | | | Elly never worried; I always worried. When |
| rocket to fall from its lofty heights. With | | | | that rocket went off, I feared it would break |
| little notice, the market stalls, momentum is | | | | a window or hurt someone. Elly said, "Just |
| lost, and markets crash.Simple laws of | | | | pump it Ray and let it go!" Some stock |
| gravity inform us that upward moves of any | | | | investors never worry. Wise Wall Streeters |
| force require energy and momentum. The stock | | | | know that "The market needs to climb a wall |
| market is ruled by the same laws. Markets | | | | of worry." War, high oil prices, poor |
| cannot, will not, and have not moved in one | | | | consumer sentiment, and Federal Reserve rate |
| direction without correcting. This means that | | | | increases are walls of worry. Euphoric |
| bull markets are not forever, and bear | | | | investors topple markets.Something to Fear |
| markets are bearable."What happened?" My toy | | | | The Vix Index is the "fear index" When the |
| rocket did not give me any warning when | | | | Vix spikes, worry increases; when the Vix is |
| falling to reality. Stock markets project | | | | down, optimism is excessive. Today, May 22, |
| warning signs when upward momentum stalls. | | | | 2006), the Vix spiked.The VIX "is a good |
| You never want markets to go up forever. It | | | | indicator of the level of fear or greed in |
| is best when markets move up, pause, | | | | U.S. and global capital markets. When |
| contract, and build a base before making | | | | investors are fearful, the VIX level is |
| their next move.A base-line provides support | | | | significantly higher than normal." |
| for a market index like the Dow or the S&P. | | | | (Antognelli, Ferreira, McArdle, and Traub. |
| Long support lines give investors solace | | | | "Fear and Greed in Global Asset Allocation." |
| because it takes a lot of sellers to break | | | | The Journal of Investing. (Spring 2000), pp. |
| through it. A support line or base (see | | | | 27 - 32). Every rocket must return to earth |
| image) is a trading pattern of stock buying | | | | for refueling. I learned this with my friend |
| and selling with little price change.No | | | | Elly and my toy rocket.Want to build a toy |
| support means the market index has potential | | | | rocket? Gary Rollins tells you how in his |
| to keep falling until it finds a support line | | | | articleBuilding A Model Rocket Can Be A Great |
| base or bottom. Markets stall when reaching a | | | | Learning ExperienceRay Randall serves clients |
| high price on average daily stock trading | | | | as a registered investment advisor with his |
| volume. Bulls (buyers) will strain to push | | | | firm, Ethos Advisory Services, Essex, |
| the markets upward, but Bears (sellers) | | | | Massachusetts Ethos Advisory Services. He has |
| thwart the momentum. An excessive number of | | | | wide experience within the financial services |
| sellers (many more than the average) can | | | | industry, writes a weekly newsletter for |
| force an index/stock to new lows."Make it go | | | | Ethos Advisory Services, and coordinates the |
| higher!" My toy rocket did not reach heights | | | | developments at Ray holds a Masters Degree |
| too fast. Elly and I were ten or eleven years | | | | from Gordon-Conwell Theological Seminary, |
| old; we wanted that rocket to disappear in | | | | Hamilton, MA. You may call Ray |
| the clouds. Many investors act the same way; | | | | (617-275-5565). |