Stock Market Crash Prophecy – That’s on the “graphic of the sinking” turn

Stock Market Crash Prophecy – That’s on the “graphic of the sinking” turn
Stock Market Crash Prophecy – That’s on the “graphic of the sinking” turn

That’s what the “Graphic of Destruction” is all about

Victor Gojdka

Published today at 09:41

History does not repeat itself, Mark Twain is said to have once said. These days, however, a price chart unsettles investors worldwide. It shows an astonishing parallel between today’s price situation and the stock market crash of 2008. If investors believe the graphic, the prices should rush to the bottom in just a few days. What do you think of such apocalypse illustrations?

In Internet forums, the “Graphic of Downfall” is currently booming. Investors are just as excited about it in the Wallstreetbets investor forum as they are on Twitter, even the well-known stock market entertainer Jim Cramer made the graphs the subject of his show on the CNBC stock exchange channel. “They look really similar,” said the moderator.

In fact, the two curves are surprisingly similar: the price of the leading US index S&P 500 rose at breathtaking speed in 2021 before starting its first correction shortly after the turn of the year. Prices have been recovering rapidly since mid-July, only to now stand on shaky foundations. If the stock exchanges continue to behave as they did in the financial crisis debacle of 2008, prices could collapse by 50 percent.

A psychological effect

The graphic is particularly suggestive because both courses are almost congruent, some graphic designers have even calculated a synchronization of 91 percent. The current point in time of the price curve is particularly worrying: If you superimpose today’s stock market development and that of the past, the US stock exchanges would be on the verge of a crash. Transferred to the leading German index Dax, it would be as if it crashed from 13,000 points to not even 8,000 points.

The price curve even employs finance professors like Hartmut Walz from the German university in Ludwigshafen. He took a detailed look at the curve’s data and came to the following conclusion: “With graphs like this, you can prove anything and the opposite as well,” he says. Because the much-cited price chart is questionable in several respects.

The graphic for the current year begins with the first trading day in January, but the price graphic from the times of the financial crisis randomly starts in September. “If they started just a few months later, there would be almost no synchronization anymore,” says Walz.

Psychologically, the graphic also tricks its viewers in several ways: since the current year’s graph ends in the middle, the brain subconsciously automatically continues it like the existing line from 2008. “We automatically add incomplete representations,” says financial psychologist Monika Müller, who advises fund managers, among other things.

In studies, for example, subjects should draw a circle that leaves a very small gap. In the end, the eyes and brains of many viewers assembled the scrawl into a complete circle – and duped them.

Researchers have found that stock market prices have very similar effects. If the prices of today and then were simply shown in a table as numerical values, the human brain would not assume a trend. On the other hand, if charts show a line, investors tend to extrapolate it.

See red and fear the bad

The colors of a graph also have a corresponding effect: if investors see any price chart in red, they immediately believe in fewer profits in the future – and therefore access it less often. “This is also due to the fact that the brain does not distinguish between pure observation and interpretation,” says Müller. So investors would do well not to be misled by graphs, but to always step back and ask themselves what they really saw on the graph – and what they are thinking about.

The end point of the supposed doomsday graphic is also delicate. The creators of the chart cut the price chart of the S&P 500 back at the beginning of 2010, well below the old highs of the same chart. The astonishing thing is that while the S&P 500 was at around 1170 points at the end of the chart in March 2010, it is currently at 3986 points and has literally shot up.

In the time behind the right edge of the chart, investors could have earned a plus of more than 240 percent and even beat the highs from the chart many times over. “So many people overestimate the short-term ups and downs on the stock markets,” says finance professor Walz, “and underestimate the long-term opportunities.”

Even otherwise rather conservative consumer advocates would agree with the finance professor. Anyone who has followed a world stock market index such as the MSCI World in the past and has remained constantly invested for at least 13.5 years would never have posted a minus on the stock market in the past half century, despite the lightning crash in 1987, the dot-com crisis at the turn of the millennium or the corona turbulence in the year 2020.

Incidentally, investors can also persuade themselves with another course that compares the current stock market situation with 1961. Here, too, there is an astonishing synchronization of the courses. Quite differently than in the supposed doom graphic, the prices rose from August 1962 upwards.

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The article is in German

Tags: Stock Market Crash Prophecy graphic sinking turn

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