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