The Stockmarket's Red Glare

The Whitney Theater (Hamden, CT) marqueethe same way; they want the markets to go up and
advertised movies for children ("Gidget"..."The Highup because it means more money. When markets hit
and the Mighty"). Every kids matinee, the managersuccessive days of positive returns, investors get
would pick a ticket out of a large popcorn box. Hestarry-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 heDow Jones Industrial Average: Failing the Average
read the numbers on my ticket stub. The prize wasInvestor" by Steven Selengut).Dizzying heights cause
an air-pumped rocket. My friend Elly and I went to anmost investors to miss subtle market moves. Stocks
open field, pumped it as hard as we could, and let itindices 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 soargetting past it will take three times the average
and crash too. Stock Market traders sometimesnumber of daily buyers.If the price stalls at the
become kids with a toy. Every day the marketbench-marked high and the buying volume is less than
pumps itself up. Indices spiral upward making manythe daily average, index prices decline."Don't worry."
giddy with kiddish delight; nobody wants this rocketElly never worried; I always worried. When that
to fall from its lofty heights. With little notice, therocket went off, I feared it would break a window
market stalls, momentum is lost, and marketsor hurt someone. Elly said, "Just pump it Ray and let
crash.Simple laws of gravity inform us that upwardit 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. Marketswall of worry." War, high oil prices, poor consumer
cannot, will not, and have not moved in one directionsentiment, and Federal Reserve rate increases are
without correcting. This means that bull markets arewalls of worry. Euphoric investors topple
not forever, and bear markets are bearable."Whatmarkets.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 projectwhen the Vix is down, optimism is excessive. Today,
warning signs when upward momentum stalls. YouMay 22, 2006), the Vix spiked.The VIX "is a good
never want markets to go up forever. It is bestindicator of the level of fear or greed in U.S. and
when markets move up, pause, contract, and build aglobal capital markets. When investors are fearful, the
base before making their next move.A base-lineVIX 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 solaceGreed 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 tradingmust return to earth for refueling. I learned this with
pattern of stock buying and selling with little pricemy friend Elly and my toy rocket.Want to build a toy
change.No support means the market index hasrocket? Gary Rollins tells you how in his articleBuilding
potential to keep falling until it finds a support lineA Model Rocket Can Be A Great Learning
base or bottom. Markets stall when reaching a highExperienceRay Randall serves clients as a registered
price on average daily stock trading volume. Bullsinvestment advisor with his firm, Ethos Advisory
(buyers) will strain to push the markets upward, butServices, Essex, Massachusetts Ethos Advisory
Bears (sellers) thwart the momentum. An excessiveServices. He has wide experience within the financial
number of sellers (many more than the average) canservices 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 anddevelopments at Ray holds a Masters Degree from
I were ten or eleven years old; we wanted thatGordon-Conwell Theological Seminary, Hamilton, MA.
rocket to disappear in the clouds. Many investors actYou may call Ray (617-275-5565).