Wall Street Witch Doctors

Wall Street Witch Doctors

Wall Street Witch Doctors

How you look at things.
April 19 2000 3:00 AM

Wall Street Witch Doctors

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Last week the stock market went down. This week it went back up. You and I may not understand why, but financial experts do. The market, they explain, works just like a bubble, a beating, a yo-yo, a fever, a road, an ocean, or whatever other metaphor appears to make sense that day. These analogies vary from analyst to analyst and from day to day, since each analogy favors a particular investment theory and accounts for only part of what's going on. If you're not a professional stock market analyst, here's a glossary of metaphors that will help you play one on TV.

William Saletan William Saletan

Will Saletan writes about politics, science, technology, and other stuff for Slate. He’s the author of Bearing Right.

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1. Blizzard. Many analysts wonder whether the market will "weather the storm." Others say it's not just a storm, it's a "blizzard." If we're not careful, the blizzard will "snowball" and perhaps, according to the New York Times, "touch off waves of selling in Asia's smaller markets," causing a "landslide." How would our blizzard make waves leading to landslides in Asia? The Times doesn't say. But a CNBC analyst suggests that the blizzard's "snowballing" would be caused by investors "bailing out." Others prefer to analyze the latest sell-off as a nuclear accident or explosion. The Times worries about its "shock waves" and "fallout" abroad. A CNBC anchor expresses relief that a "Monday meltdown" was averted because a "big downdraft in stocks failed to materialize." Had that downdraft materialized, God knows what would have happened.

2. Bubble. To a child, bubbles are harmless. But to a financial expert, they are terrifying. The Nasdaq's growth since last fall "looked like most of history's other great bubbles, all of which ended in terrible carnage," warns the Los Angeles Times. "Bubbles, as they burst, have a way of causing damage far beyond their own shadows." The Washington Post, on the other hand, sees hope in the bubble's explosion: "For the economy as a whole, the air escaping from the stock market bubble could prove to be a cooling breeze that tempers a red-hot consumer spending spree."

3. Gravity. Many tech stocks have been "high fliers" and now face the inevitable "return to earth." A newsletter publisher explains to the Post that investors found themselves "high up in the sky and they began to look down and say, 'Whoaaa!' It gets to a point to where ... maybe, like the Wizard of Oz, somebody draws the curtain." Another money manager cautions investors not to buy stocks just yet, because "an elevator dropping from the 100th floor to the 50th floor is not the bargain basement."

4. Bounce. Optimistic advisers urge you not to worry about gravity. They say you should buy because the market will "bounce" upward again. "You want to buy across sectors to make sure you participate in the rebound," a financial planner tells the Wall Street Journal. Once the market has bounced, however, optimists don't want to continue the metaphor, since it implies that gravity will negate the bounce. So they resort to animate metaphors instead. "Many more times than not, what you get is a bounce, and then another pullback," says one strategist.

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5. Floor. What does a falling market bounce off of? Why, a floor, of course. And what does this floor consist of? A "trend line." According to an analyst interviewed on CNBC, Monday's rise in stock prices is "an initial bounce off of an extraordinarily compressed, oversold condition. The Nasdaq happens to have bounced right off the trend line from the 1998 lows." The only question is where exactly the floor is. "It used to be that someone was bold enough to jump in and buy. But lately, there has been so much uncertainty about where the floor is," frets one broker. A CNBC pundit counsels skepticism: "Some of the blue-chip tech stocks like Intel [are] helping to put a floor under the Nasdaq. We'll see whether the floor is a real floor or a false floor."

6. Support level. Investors too ignorant to see the floor need to be taught to look for it at the "support level." And what, exactly, is a support level? According to a Barron's writer, "That essentially means it's at a level now where buying has come in before [and] acted as a support point." And where is that point? "It's actually been kind of sticky," says the writer. "So maybe [the market] won't go too much further below this."

7. Bottom. Anyone who still doesn't understand where the "support level" is can find it at the "bottom." The "bottom" is the place where, in retrospect, the market stopped falling. Throughout the latest market slide, TV anchors, fund managers, and commentators have been desperately trying to "find a bottom." "Was that a bottom on Friday?" a CNBC anchor asks one strategist. Even if a bottom is found, it may be too low. A strategist interviewed by the Journal worries that the Nasdaq might "find a bottom somewhere between 2900 to 3000." He counsels his clients to "avoid the temptation of being a hero here and picking the bottom."

8. Traction. In case the market doesn't find a bottom, optimists hope it will at least find "traction." The Nasdaq is "trying with its fingernails to hold on into positive territory," says a CNBC anchor. The Los Angeles Times points out hopefully that Friday, the Dow "clawed about 100 points higher by the close."

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9. Rest stop. Pessimists worry that if the traction doesn't hold, it will turn out to be just a "rest stop." Whether the Nasdaq's "modest moves" upward signify traction or "simply a rest stop before a trip to lower levels" is "anybody's guess," warns one commentator.

10. Dip. If stocks fall into a rest stop without bouncing, perhaps they're just in a "dip." In that case, you should "buy the dip." How do you know it's a dip rather than an abyss? The same way you recognize a dip in the road while driving. First, there's a sign in front of it—in this case, posted by brokers and fund managers—assuring you that it's just a dip. Second, after you've gone through it without falling to your death, you have proof that it was just a dip. So go ahead and buy, says a newsletter editor, and stay with the dip no matter how far down it goes: "Sometimes, the dip extends more deeply than you expect, so you may have to go through a long period when you're underwater. Over the long haul, though, it should work out well." (Following the dip might lead to a collision of metaphors. The Journal points out that recently "investors inclined to 'buy on the dips' have run up against others selling on the rebounds.")

11. Yo-yo. In case stocks don't bounce, they might be rescued by the market's invisible bungee cord. The Nasdaq "opened markedly lower" Monday, according to a CNBC anchor, "but then began to snap back." Why? It's a "yo-yo market," the anchor explains. "Not a strong bounce-back rally, but not the slide that some had anticipated."

12. Falling object. If you try to grab a falling stock, and it fails to bounce or snap back, it might hurt you. Pessimists caution you to wait. This week's stock buyers might "catch a falling knife," one expert explains to the New York Times. "One cannot help but be a little sober about the playing field in which we find ourselves." To avoid the knife, stay off the playing field.

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13. Tide. When the market goes haywire and investors get nervous, advisers assure them that the market is cyclical and predictable, just like the sea. All you have to do is wait for the "tide" and let it "buoy" your stocks. When the tide fails to show up, the advisers amend the analogy. A year ago, "the tide was coming in so fast that all you had to do was be a boat and you'd rise," a tech stock strategist explains to the Journal. "But now we've packed the harbor with thousands of boats, and the tide isn't coming in so fast anymore."

14. Dance. Some gurus analyze the market as a dancer, alternating its "moves to the upside" with "moves to the downside." "The markets are bouncing today," says a CNBC pundit. "After what had been several stutter-steps and several attempts to rally, we are seeing a more decisive move to the upside."

15. Injury. Pessimists worry that if the market isn't careful, all this bouncing and dancing could break a bone or dislocate a joint. "What if, though, the stock market does more than what it did just last week? What if indeed it falls out of bed in a more meaningful way?" a CNBC reporter asks a money manager. The money manager replies that it's OK because the Federal Reserve Board "has reacted very well to dislocating markets before."

16. Wringing. Optimists reason that if a sell-off doesn't dislocate the market's shoulder, it will probably heal the market by "exhausting" and "wringing out" its "speculative fever." Every once in a while, the market needs a "blowout" to "knock out the tar." "Professional investors and analysts like to see a level of panic that indicates that … the weak hands holding stock have been shaken out, [that] they've thrown in the towel," says one commentator. "What that means is there's more money on the sidelines, there's more buying power that can flush back into the market." Fortunately, the human plumbing analogy ends there.

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17. Beating. If you own stocks, it's painful to see them beaten. But if you don't own them yet, you want to see them beaten as badly as possible. Market strategists advise you to look for "battered" and "hard-hit" stocks and "pick off the beaten-down technologies that have good futures." The harder they're hit before you buy them, the better.

18. Psychology. After all the bouncing and beatings and wringing out, the market needs therapy. It is "manic" and can only be explained in terms of "sentiment" and "broken psychology." "Sometimes [markets] go down because psychology is broken. That's been the case today. It takes some time for psychology to regroup," a financial adviser tells CNBC. Another advises the New York Times that if last week's sell-off has "broken the psychology that every dip is a buying opportunity," it might "take away a cushion for stocks." Without the cushion of that sentiment, obviously, stocks won't bounce.

If the market must bounce on a cushioned floor, and that floor rests on a psychology that might be broken by all the bouncing, then what, in turn, does the psychology rest on? It rests on a bottom, of course. "A lot of the sentiment indicators, I think, need to get a little more fear in them before we feel more confident in calling it a bottom. It's only the short-term momentum that got oversold enough to bounce," one market expert from Merrill Lynch told CNBC. "We need a couple more doses of fear here before we get the right kind of numbers … where we have overconfidence in the bottom."

To find out where the market's head is, in other words, look for its bottom. That's what we thought.