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