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The Monsters are Due on Wall Street
Greed. Fear. They are the two emotions that rule financial markets. Greed sends the markets up, while fear sends them down. Lately, fear has begun to sink its claws in. For instance, take today's lead sentence from a page 1 story in a leading financial newspaper:
Fears of a credit squeeze and economic downturn pushed the Dow Jones Industrial Average into a full correction, as yesterday's 1.83% decline sent it 10% below its October peak…. [Wall Street Journal, 11/27/07]
Fear makes people want to sell their stocks. It takes a level head to shake off thoughts of fear when others seem consumed by it – particularly when you invest in the markets. Fortunately, technical analysis allows investors to separate their thoughts from their emotions. That can be useful during days when the market drops more than 200 points.
But fear is such a strong emotion that it can also make people turn on one another. Which is exactly the point that Rod Serling made in his classic Twilight Zone episode, called "The Monsters Are Due on Maple Street," which first aired in March 1960.
The show began with neighborhood kids playing outdoors one summer evening on Maple St. There comes a loud roar, and all the lights and phones go out. When one adult tries unsuccessfully to start his car only to have it turn itself on as he walks away from it, the others look at him suspiciously. Then the lights turn on in one of the houses, and the parents and kids look in panic at the owner of that house. As their fear mounts, one of the loud-mouthed neighbors shoots a stranger walking toward them on the street. He breaks down and blames one of the little boys for all the trouble, saying, "Look, I swear it isn't me! But I know who it is! I know who the monster is!"
Then the episode concludes with two voices discussing their experiment:
Alien #1: Understand the procedure now? Just stop a few of their machines, and radios, and telephones, and lawnmowers, throw them into darkness for a few hours and then sit back and watch the pattern.
Alien #2: And this pattern is always the same?
Alien #1: With few variations. They pick the most dangerous enemy they can find. And it's themselves. All we need do is sit back and watch.
Alien #2: Then I take it that this place, this "Maple Street," is not unique?
Alien #1: By no means. The world is full of Maple Streets. And we'll go from one to the other and let them destroy themselves. One to the other...One to the other...One to the other...
That's a powerful reminder of how fear works – on both Maple Street and Wall Street. And it was an interview with Stephen King in Time magazine that brought this Twilight Zone piece to mind. Here's a question and answer from that interview about the new movie based on his novel, The Mist:
Question: Part of The Mist is this subtext about how fear makes people irrational. How do you think that's playing out in the world today?
Stephen King: Well, it's always there. What The Mist reminds me of is a big, exciting version of an episode like "The Monsters are Due on Maple Street." In that episode, these aliens did an experiment to see what fear did to human beings. [In The Mist], there really are monsters and they show up on Main Street in this little town. Granted, the situation is unreal, but an audience can say, "Here's a good, harmless place where I can actually test drive what I would do in a disaster." Particularly if the disaster was just totally inexplicable. But in the real world, if disaster strikes us, it seems to me that it's always inexplicable. [Time magazine, 11/23/07]
But in either a greedy world or a world of worry and fear, the markets are not completely inexplicable. That's where students of Elliott wave analysis can learn how to keep a grip on their own fear or greed and see what's really happening in the major financial and commodities markets. For instance, on Monday night (November 26), our Short Term Update calmly pointed out after a serious down day that there are still two viable scenarios for what's going to happen next in the markets. In fact, the August lows are key to knowing whether one bullish pattern or one bearish pattern will take hold.
If you like the feeling of being scared, sit down with a DVD of The Twilight Zone and a bucket of popcorn. But if you would prefer to stay calm amid a panicking herd, then sign up for a subscription to the Elliott Wave Financial Forecast Service by clicking on the button below to get more information.