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