Stock-market Forecasting as Cosmography.
For about ten years, charts have been the subject of all attention. This phenomenon, which is certainly not unrelated to the development of modern markets, is also the consequence of the stock-market crash of 1987 -- or more exactly of its judiciously fulfilled prediction by the most experienced analysts. Henceforth, it is no longer an information terminal which, on the huge dealing floors, or on the small speculators' portable screens, is in the privileged position of providing graphs relating to the change of stock-market indices and values. Graphical information is diffused in real time, by a small number of companies, mostly American (such as Blumberg or Telerate, as well as Reuters). These allow operators, especially those speculating on short-term fluctuations, rapidly to detect floors and ceilings within which rates may vary. These graphical analyses don't teach them why rates vary, but show them when and how to act, and this, it seems, is the main thing for them.
Three different categories of chartist analyses can be distinguished. The first, which can be called `traditional', comprises a vast panoply of graphical tools. As an illustration we can cite: bar graphs (one of the most used models), points and lines (certainly one of the oldest), or Japanese candles (borrowing the terminology from the Chinese model of prophecy, I-Ching). The second category, more recent, adopted by a new generation of analysts, does not itself necessarily resort to graphical representation. Particularly sophisticated, these `modern' models of technical analysis specifically allow one to quantify, in real time, the risks incurred on a market.(5) And this is made possible thanks to the data processing capability borrowed from the latest research, especially in mathematics and physics (spectral analysis, pattern recognition, numeric filtering, etc.). If these tools seem to be destined for growing success, the `traditional' models of technical analysis,(6) which guide speculators according to simple recommendations to buy or sell, are still generally used on dealing floors and by small speculators such as day traders. Next to the `traditional' category mentioned above, there is a third category of models judged the least interesting by numerous university researchers and certain practitioners when they are presented as no more than `occult' or `mystical' models.(7) R. N. Elliott's model is thoroughly representative of this category. Completed in 1939 and subsequently improved, it postulated the existence of a perpetual return of the stock-market cycle, calculable as an interval of 1,618 (Fibonacci's golden number), between what Elliott had called `wave impulses' or `corrections'. But, over and above the technical characteristics of this model -- inspired by the theories of one of the founders of technical analysis, Charles Henri Dow (1865-1902) -- we shall in particular retain the logic that drove Elliott's vision of the stock-market world. This thesis, supported by the idea of a correspondence between microcosm and macrocosm, allows its inventor to conceive of variations in rates as a cyclical process exemplifying this cosmic computational principle.
Here might also be mentioned the model of William D. Gann. At the beginning of the twentieth century, this famous American speculator applied to the understanding of stock-market fluctuations a theory resting on a principle according to which there existed a `mathematical force' able to influence the change in rates of a security. His technique, which after vanishing for several decades reappeared in the 1970s, was supposed to allow one precisely to determine the maximum value that a security could achieve. In fact, this model leaves no doubt as to the wish of its inventor, namely: to find within it a deterministic and explanatory principle relevant to all stock-market fluctuations, irrespective of time and place.
This principle or idea of correspondence between microcosm and macrocosm, evident in these two chartist models, is doubtless not completely alien to other models cited above, nor to the natural conception of the financial world held by numerous speculators in respect of the manner in which they can act on and in this world.(8)
The market as entity: ordering in a universe of correspondences
Traders(9) concentrate on the market without thinking about the sums that are at stake ... They know very well that they represent important amounts but they don't really think about them. These are such large amounts that it's not worth trying to imagine them ... The only thing that ultimately interests them is losses and profits; the rest is, for them, another story ... Traders must take important decisions in a few seconds, they must be extremely attentive and must not let themselves be surprised, and the best thing is to be sure to anticipate what will happen,... to feel the market, to have a nose for it and not to let one-self be invaded by fear.... Their job is to take calculated risks, having an opinion about what is going to happen and on that basis taking a decision.... Yes, it will sometimes happen that charts will be a good means of seeing in which direction the market is headed, there are some unmistakable signs ...(10)
Thus speculators who resort to `traditional' technical analysis don't have a marked appetite for predictions made on the basis of studying economic results (fundamentals). What sharpens their curiosity is to be able to answer questions that are as simple as they are pragmatic: in what direction will the market go, and what should they do in the seconds, the minutes, or the days that follow?(11) Should they buy? Will the market go up? Should they sell? Will the trend be confirmed or will it fall?(12) To reply to such questions the adherents of chartism rely especially on their experience, on their capacity to recognize and decipher the graphical signals given by the market before adopting this or that strategy. These speculators essentially apply their attention to the charts and to the markets in the hope of realizing, with the shortest of delays, a good deal, a `good coup', or at least, as far as possible, of avoiding bad ones.
Following the works of Keynes and his disciples, speculators can no longer be unaware of their effects in the process leading to the formation of prices.(13) However, it remains the case that for a good number of them, the market is seen and lived `as if'(14) its state were independent of their action and their will. It is not at all rare to hear them say that the market has "its own psychology", that it is "optimistic" or "sullen", or again that it is "agitated". Omniscient and omnipotent, it obliges speculators to "follow" it, and only offers them rare opportunities to "beat" it.
These expressions, when they are used by adherents of chartism, are not just simple metaphors with which they try to describe the general climate or the complex mechanisms controlling the markets. One has the impression, rather, that these expressions, which make the market seem like a completely separate entity, are above all truths distilled from the `lived experience' of actors in the money markets. If one had to describe what these speculators feel when they consult the charts, I would say that at that moment they apprehend the world around them "as if" there were a relation of profound identification between global reality, financial markets, and graphs; these three dimensions thus forming, in their immediate experience, the one true reality. In other words, chartists would be confronted with a world on several levels, in which the graphs would be the most visible elements, acting as mirrors without which it would be impossible to read and interpret the meaning of the stock-market world. Thus for the chartist it's not a question of inferring, from effects (the graphical configurations), the causes of variations in rates. His behaviour is not really like that described by Carlo Guinzburg (1989: 137-80), when he mentions the prophetic standpoint (induction) of the primitive hunter searching for perceptible traces left on the soil by the animal he pursues. The chartist, rather, gives the impression of wanting to discover and decipher prototypes or intelligible symbols that allow him to recognize unchanging meanings as opposed to the chaotic behaviour of markets. In the final analysis, one can say that graphical configurations appear to analysts as so many visible signs of the financial `macrocosm'. The meaning of this reality can only be understood by and is only revealed to those who have the required competence to read its `signatures'.(15)
Thus the chartist world is one with several levels of reality in which there is a relation, without a guarantee of continuity, between what I would describe as `informal macroscopic reality' and its formalized microscopic representation (the charts). Now, such a logical correspondence and ordering cannot fail to recall a process very familiar to the anthropologist. Indeed, the logic found there is indistinguishable from that underlying numerous divinatory practices in which certain privileged objects play an essential role.(16) The entrails of sacrificed animals, or signs traced in the soil, or even the crackling of a heated tortoise shell, are themselves isolated and studied at the core of certain mantic practices because they are supposed to be the perfect reflection of the global cosmic order. Moreover, they are a part of the cosmos itself (Vernant, 1973: 17-35). It is the organization of these stereotypical configurations, of these `signatures' of divinatory practice, discovered and deciphered in a manner that is unchangeable and fixed by tradition, which will allow the prophet to anticipate, in complete harmony with the cosmos, future events, or to dictate what should be done to manage them best.
Like mantic `signatures', charts themselves also reveal a certain number of stereotyped figures which don't seem to recognize the hazards of history. This has to do with reading configurations that are supposed already to contain in themselves future market trends. Such graphical configurations, which amount to signatures, would in this case be identified and deciphered not by the prophets, but by another category of specialized people, namely the chartists. These latter operate thanks to models valid for the past, for the present, and are supposed to predict a quasi-certain future. Each configuration would have its own meaning. The chartists' job is to attach these meanings to the global order of the stock-market cosmos. Given this crazy and elusive reality of markets, it seems a good thing that analysts should have the task of controlling it, of giving it some meaning, of transforming this `pluri-meaning' into a `uni-meaning'; and it is only on condition of this passage from chaos to cosmos that speculators can act in accordance with reality. As we noted above, analysts' graphs are considered as an objective reality, at a second remove that corresponds faithfully with the world in which they live and act. After the consultation, or more exactly after the analysis of this second remove, all reference to events outside the graphs seems to disappear, until the chartists' field of vision shrinks to a graphical micro-reality. Thus, in the practical -- theoretical logic of the speculators, there is no longer any need to describe global and empirical reality (including that expressed and translated into economic language). The market can henceforth be considered as a completely separate entity.(17)
Prophecy and chartism: a common logic
In fact, the operating logic in question seems to take to extremes a cultural method of confronting reality, widely explored by anthropology within core institutions in various cultures, modern and non-modern.(18) It is precisely what one could call `ritual logic', understood as the establishment of a fixed and unchangeable way of acting, objective because alien to men's will and supposed to act on that part of reality considered as `mutable' or `modifiable' and thus susceptible to human intervention. If one accepts this analogy, and if one assumes that all rituals, and a fortiori all divining practices, use a `ritual logic' in the sense referred to above, one could then justifiably assume that the same logic drives graphical forecasting models. The mass of disordered fluctuations in financial markets, and the factors able to influence them, in short `stock-market reality', would be, as a consequence, treated in a `ritual' fashion. In applying the definition of `ritual logic' to our subject, as understood by Dario Sabbatucci (see note 19), we must now verify the following hypothesis. Chartists would use technical analysis as an instrument which, paradoxically, by virtue of the fixed rules that govern it, constitutes an ideal way of acting in concert with a `stock-market reality' in perpetual change. And it would only move when ordered, the objective of these mechanisms being to give speculators elementary models for action.
Presented as a caricature, all the graphical configurations encountered in manuals targeted at analysts are generally accompanied by a commentary, or by propositions such as the following: if the graph shows configuration X, then the market will tend to rise, or similarly: act in this way if the curve looks like this. According to more concrete examples, but ones which don't take account of the complexity of interpretations and the tools used:
(A) Buy (B) when the rising steep average crosses the level average;(19)
(A) Sell (B) when the falling steep average crosses the level average.
(A) Buy (B) when rates go above the two static averages and close long positions when prices are between the two averages;
(A) Sell (B) when rates go below the static averages and close short positions when prices are between the two averages.
Note that the numerous graphs and propositions contained in specialist works present a hypothesis analogous to the propositions contained in certain treatises on divination, very far removed in time and space. There is, for example, an obvious formal similarity between the propositions cited above and the formulas in prophetic treatises from ancient Babylon. This way of expressing predictive statements is by no means due to simple chance.
Babylonian treatises on divination are put forward according to a fixed logic or unchangeable grammar, which arranges the statement in two distinct parts. One part is the `protasis', which is in the past or the present, and which contains the observed concrete empirical facts, from which one draws the omens. The other part is the `apodosis', that is, the oracle understood as an abstract prognosis, expressing a possible future:
(A) If an umsatu(20) is found in the right corner of his eye --
(B) then he will have just enough money to repay his sponsor;
(A) If an umsatu is found in the left corner of his eye --
(B) he will receive a present, the `gifts of the road'.(21)
Thus it can be stated here that the `formulas' linked to graphical analysis, as well as those contained in Babylonian treatises on divination, are organized on the basis of a dual and fixed structure. In one part of the device are contained the facts emerging from concrete observation, or the graphical event. In the other part are found the oracle or the prognostication. Such a logical device, which puts two autonomous statements into a relation of cause and effect, depends for its efficacy and operative value on the possibility of being applied to any event, and of subjecting this to an ordered discipline which, thanks to the relation, specific and fixed in advance, unites fact and prediction. This relation allows spheres that are far removed from each other to coexist, by making them mutually interdependent, without support that is obviously visible or necessarily verifiable according to some kind of scientific method. This association between sign and sense thus indicates the symbolic dimension of this relation. Indeed, it does not always depend on tangible or quantifiable evidence, but rather on an arbitrary convention. That does not necessarily mean that this causal relation is unjustified or that it has not been the subject of empirical verification. It allows us, whatever it is, to create a kind of code which in no way aims to explain the world but rather seeks to find a meaning in it. And a meaning that adapts itself effectively to defined goals since it constitutes the solid basis (because socially shared) necessary to the community of model users, in respect of action on and in reality. It is worth emphasizing that in the field of financial speculation, as in other forecasing contexts, where the accuracy of predictions is judged after the event (the basis of forecasting revealing itself once the event has taken place), it is always possible to find one or several complementary explanations in the case of failure, without having to call in question the legitimacy of the mechanism for managing uncertainties. Indeed, if these mechanisms are not -- and it must be admitted that they are not -- infallible to every proof, one can appreciate that their users may not wish to use them any more. As we have been able to determine from our inquiry, if the adherents of technical analysis easily admit that they may be mistaken, they still would not consider abandoning their preferred forecasting tool. It would be tempting to think that this acceptance of the fallibility of charts, and thus of the chaos which characterizes variations in rates, is the expression of speculators' more or less conscious will to `preserve' a vision of the world of financial markets understood as a universe in constant change, an entity with capricious `psychology', but which remains comprehensible thanks to a proper reading and interpretation of the `signatures' which it appends to the graphs. Moreover, the chartists' manuals even show evidence of analysts' desire for a complete appreciation and understanding of the changing reality of markets. The number of configurations presented in these works is so large that they seem to want to reduce total reality to an exhaustive repertory of possible states of the world.(22) This procedure of discovery and classification would have the aim not only of finding an underlying order in chaotic price fluctuations but equally of eliminating all kinds of risk -- as can be the case for various forecasting models where no risk exists. Thus apprehended and objectified, the financial world and its events are captured in the meshes of a vast net where signs and sense are intertwined and interrelated. All events can thus, due to this enormous repertory of `signatures', take the form of a comprehensible and controllable reality.
However, if this market reality as `ritually' described by the chartists expresses a desire for order, it is far from being determined and thus totally predictable, as we have already said. On the contrary, it is subject to changes that very often remain undetectable. Moreover, and this is not a mere matter of detail, one could even say that market reality is driven, in its construction, by a symmetrical and opposite desire. An antagonistic desire systematically to question the established order and aimed at convulsing the world of financial speculation. One could wonder, then, if these two tendencies, these two logics, that of order and that of systematic questioning, are effectively discoverable at the heart of speculation and chartism. How are these two aspects related? And what is the meaning of this double movement? Marc Eichinger observes:
Every morning, there is a blank sheet and news arrives, overturning all predictions, all expectations, and each week, each month, a results sheet appears ... They [speculators] are a bit like peasants, but in an unsupported market with formidable climatic risks. (Eichinger, 1996: 8)
This remark by the co-director of the treasury of the Banque de Bruxelles, Lambert-France, comparing the speculator with the peasant facing climatic uncertainty, seems to us particularly eloquent and wise -- except that in the stock exchange the rain and the fine weather (the tendencies of the market) depend in large degree on the desire of speculators and on their collective reaction vis-a-vis this or that event.
If I insist on this distinction here, it's not to blame men of finance for their tendency to formulate their arguments about the market on a quasi-metaphysical and deterministic level; it's rather because I see these arguments and speculation as one of the best ways to express the characteristic forms of the complex and apparently contradictory logic that organizes our culture. Indeed, the game of speculation seems to be constructed in the image of our modernity, which itself cannot be understood apart from the concept of valorizing the principle of `permanent change'. This characteristic, typical of the modern world and of the occurrence of stock-market speculation, is certainly not unrelated to a cultural orientation which has, in many respects, been discerned in the foundations of Roman civilization. Namely, `actualism'.(23) Such an orientation, of which we are the inheritors, is defined precisely by this desire systematically to call in question once more the terms of a given reality whose forms and bases we constantly review. This idea of `permanent change' presupposes another fixed element: the valorization of the individual as an active agent of this change.
Chartism: cultural and psychological logic of the market
One must not hesitate to take the initiative and follow the direction of the market ... One must at the same time manage the situation and understand the market. As everyone is doing more or less the same thing ... technical analysis allows one to follow the market exactly and take the profits before it's too late.(24)
In showing in what phase the world is now and what its future state will be, charts are reputed to be the best means of observation and analysis of the behaviour of a market or, more precisely, of what may conveniently be called its `psychology'. Now, if one wanted to study such a psychology, or to be exact, the inbuilt mechanisms through which all the operators behave in a market, one could not avoid having to confront two inseparable phenomena related to speculative practices: imitation and anticipation.(25)
Following the works of Keynes, all the financial experts agree that the most rational attitude an agent could adopt in the face of uncertainty of stock-market fluctuations would be that which consists in imitating the behaviour of other agents. Indeed, if certain of them profit from privileged information, which can give them a decisive advantage over the others, `the imitator', too, could likewise profit from it. This type of `copying' behaviour underlies in particular the formation of the famous `speculative bubbles'. There are obvious times -- for example, after the publication of certain economic results such as those of consumer price indexes, or after official or officious declarations by important personalities -- when uncertainty, lack of confidence, and fear win over a majority of the community of speculators. Thus speculators, faced with such information and the anxiety that it provokes, don't seem to have time to manage the event without entering into a real crisis during which individual choices are subsumed by those of the crowd, and the single subject abdicates his autonomy; and lets himself be more or less voluntarily carried along by the collective tide. As a consequence of these complex phenomena of generalized mutual imitation, of this contagious crisis, negotiations can get carried away and prices can become completely disconnected from reality, at least those exterior to the markets. However, if this situation of disconnectedness is allowed to persist and to be reinforced, it will in many cases only be a matter of minutes before calm is restored, the bubble bursts, or at least stops inflating dangerously. Whatever happens, and whatever the outcome of such a process, it is clear for Keynes and his followers that prices used on stock markets are, in fact, the result of a "conventional evaluation, fruit of the mass psychology of a large number of ignorant individuals" (Keynes, 1969 : 169), ignorant in the face of the `radical uncertainty' of fluctuations, and acting in response to price variations of which they are ultimately the producers (in this case the market is called `self-referential').
Another observation from Keynes's General Theory of Employment, Interest and Money, very familiar to experts in stock-market speculation, and which is difficult to disregard, also gives a very telling clarification of speculative mechanisms, and more particularly anticipatory phenomena. Keynes here compares speculation to a game taking the form of a beauty contest
organised by newspapers in which the participants have to choose the six prettiest faces among about a hundred photographs, the prize being awarded to the one whose preferences most nearly approach the average selection made by all the contestants. Thus each contestant must choose not the faces that he himself judges as the prettiest, but those that he estimates are the most likely to get the votes of the other contestants, all examining the problem from the same angle. It is not up to each to choose the faces which, as far as he can judge, are really the prettiest, nor even those that average opinion will actually consider as such. At the third remove, where we now find ourselves, we use our faculties to discover the view that average opinion will give before we give our own judgement. And there are people, we believe, who go to the fourth or fifth remove or even further. (Keynes, 1969 : 171)
Thus one can understand that the prices used by speculators result from a process that does not necessarily refer to criteria that can be considered `objective' (especially the fundamentals), but rather to emotive and subjective judgements, focused essentially on the market and on agents' psychology. One can understand, equally, why the world of speculation sometimes takes on the appearance of a universe, of a system totally closed in on itself, of an autonomous entity more or less disconnected from economic, social, or political reality. And finally; one can understand why charts are not simple `histograms' of the prices used on a market, but rather true graphical representations of speculators' self-referential and imitative behaviour.
In fact, traditional chartist models (aimed at managing financial contingencies) and the game of speculation (depending on the psychology of competition) can be understood as a double-sided system. In other words, and to be more precise, if one follows the path set out by Keynes, one can go so far as to say that configurations -- and their relative strategic warnings and recommendations -- express the rising and falling conventions that speculators have decided amongst themselves. Distilled from experience and tradition, the chartists' graphical configurations are the reflection of a fixed order, meta-historical and conventional, that underlines the chaos of price variations. It would thus be a question of understanding chartism as a device aimed to formalize and preserve, in a time out of time, traces of the permanent changing of a reality conventionally produced and reproduced by speculators behaving in a gregarious and stereotypical manner.(26) That is, in summary, what one could call the stable and ordered side of the system, which means that apprehension, objectivization, and action are on the other side. A place of instability and disorder, this side is actually the inevitable result of the game of speculation. This other side is that of strategies that are diverse and contradictory, the arena of manoeuvres and trickery. It's here, too, that chaotic graphical landscapes become apparent and here, in addition, that the population of investors divides into two camps: that of the losers and that of the winners.(27) It is obvious that the game of speculation is no exception to the rule. "Like all other games, it has as objective and consequence the creation of differential gaps between the individual players, or sides which nothing at first indicated as unequal and which ... at the end of the party divided themselves into winners and losers" (Levi-Strauss, 1962: 46). Now this division into two, in which the winners on one day would be the losers the next and vice versa, isn't made by chance. As Claude Levi-Strauss notes, our culture has an unrivalled liking for games and the asymmetry they give rise to. And this "follows inevitably from the contingency of events, whether they show intention, chance, or skill" (ibid.: 48). Moreover, such an approach to games applied to speculation seems all the more legitimate in that it summarizes perfectly the hypothesis of an `actualist' cultural logic, and of the valorization of individual choices underlying speculative practices. If all speculators opted for identical strategies (or forecasting and action models), how would the market ever be liquid? Or, in other words, how would investors be able to find counterparts, the indispensable trading partners with whom to exchange and negotiate their shares? They must always be able to find sellers when they are buyers, buyers when they are sellers, and, as far as they can, buy shares at the lowest price and sell at the highest price possible in order to make a profit.
To conclude this foray into the world of financial markets we should first of all say without trying to invoke the irrational, that it is possible to discover a certain number of structural and functional resemblances between chartism and some prophetic practices. These are ways of managing contingencies that actually respond to the same need to put reality in order according to a ritual logic; and to do so in respect of action on and in a world where the point is not only to describe the world but also to construct it. However, in the case of chartism and in the game of speculation, this description and construction seem to proceed according to a cultural logic typical of the actual world, a logic that I have qualified as `actualist', with reference to the homonymous philosophical orientation in which individual will and a questioning of the established order are the fundamental premises.
In fact, the chartists' forecasting models and the game of speculation would make up a system with two aspects, at the heart of which lay order and disorder, stability and instability, or even structure and event; they would maintain a dialectical relation typical of our present-day cultural logic. Thus, whatever the assumptions on which chartists' traditional models rest, these are far from being the product of illogical reasoning or a stray archaic residue at the heart of hypermodernity. Certainly, in apprehending market trends on the basis of psychological effects that things of the world induce in agents (especially that of trying to discover the relations between those things of the world), chartists irrevocably put themselves in the position of being relegated, by men of science, to the limbo of irrationality. However, we should stress that if some of them claim to find a meta-empirical order underlying rising or falling trends, no one is really fooled. In fact, all actors in the financial arena, even the adherents of technical analysis, know very well indeed that the obvious convulsions of markets, like the outlines of the charts, are above all the expression of their actions, of their interpersonal relations, of their desires, and finally of their `wills'. Speculators are perfectly capable of looking critically at their theories and practices. I have never encountered, neither in the literature or in the field, operators who really do not know that the contingencies confronting them are the expectations of the psychological impact of one piece of information on the whole of the community. In short, for all those who practise speculation -- or if you like for all the competitors who take part in this form of game consisting of a psychological war of everyone against each other, generating chronic uncertainty -- it seems obvious that markets and prices are artefacts in whose production each is an active participant. And if certain practitioners paradoxically persist in speaking of the market as if it were an entity, or if they `believe' in models that defy scientific reality, it is, it seems to me, because `it works'. In other words, we have previously analysed certain aspects of the chartist thesis as the result of a cosmocentric conception of the financial world. Now, the use of such a metaphor is not unrelated to this overriding necessity that obliges each speculator to face, or at least to conform to, `general opinion' (Keynes, 1969 ) as expressed by the financial community. The role of this opinion is so limiting, from the point of view of elaborating individual strategies, that it ends up by being seen by practitioners as taking the form of an entity.(28) However, this metaphor evokes a practical illusion to aim at, a strategic "as if" whose operational goal allows appreciation and action on and in a complex reality in a state of permanent change. That said, it is undeniable that the anthropomorphism of the market and this cosmocentric conception of reality cannot mask the fact that the market is, through and through, the product of man's thought and action -- which constitutes, without doubt, the stumbling block on which every exterior explanation for the very functioning of the market founders.
It remains to clarify one last point. This indirect approach to financial reality as practised by chartists seems to come up against the Western cultural orientation in which chaos, far from being seen as a condition to which one should adapt oneself, constitutes, rather, the feared enemy, demanding to be kept in check or at least explained. Thus for scientists, agents' behaviour in financial markets lends to price variations elusive properties of a `random walk', of `Brownian motion', or even `chaotic phenomenon'. These amount to poetic formulas behind which are reaffirmed the supremacy or legitimacy of mathematical formulae relating to universal laws allowing us to describe, explain, and sometimes even to predict scientifically the future forms of `stock-market disorder'. Now, to appreciate this, it is clear that chartists have themselves opted for a completely different cognitive model giving them access to stock-market reality. Their theories assume quite explicitly that the chaotic variations in prices conceal an underlying order which overrides a world in continuous change. Change which, for them, it is not a question of denying or of restraining with legal scientific bonds, but with which they must live in harmony. Thus chartism seems even better adapted to speculation in that it allows us to see chaos and uncertainty (indispensible to the speculative game) not as a limit to knowledge and to control over reality but rather as its dynamic principle. Here we can point to the reasons for the enthusiasm that numerous speculators have for certain oriental philosophies and prophetic practices. For example, the I-Ching or Book of Changes -- which has inspired certain traditional models of technical analysis -- provides a cognitive model not far removed from that of the chartists. Indeed, in those manuals, as in the treatises of prophecy from the East, there are no answers to the question of how the world was made, but rather an invitation to adopt behaviour that conforms to the actual order of things. The Knowledge stakes actually consist in perceiving the deep harmony, the unchangeable order that pervades all chaotic reality, and thereby makes it intelligible and adapts to it in a flexible way. This is why the sixty-four hexagrams in the prophetic I-Ching, which represent the cosmos in its totality, provide the means by which to act in harmony with this order and to manage the world's permanent changes. Or to borrow the words of a broker, "to face up to the perpetual storm".
This article is the result of a field study carried out in 1998 in conjunction with practitioners at the `Term Market of France' (MATIF) and of research on a body of texts drawn from the financial literature. The present study on chartism borrows some conceptual tools from the Roman School of Religious History, in order to enlarge the field of application of these tools to the new subjects raised by the contemporary world. The universe of financial markets is precisely one of these new subjects. Economists and practitioners have of course -- for a long time -- described and theorized the functioning of markets and behaviour of agents. However, such an area, which at first glance has nothing exotic about it, has still not been systematically studied by anthropologists. It remains the case that paths have been opened up, and meticulous studies have been led by a growing number of researchers working in the fields of sociology social psychology, as well as in political science: see Michel Callon, The Laws of the Markets, Basil Blackwell, 1998 and Jean-Pierre Dupuy, La Panique [Panic], Editions Delagrange, 1991; La sacrifice et l'envie [Sacrifice and Envy] Calmann-Levy, 1992; but also Andre Orlean, Le Pouvoir de la finance [The Power of Finance], Odile Jacob, 1999. Likewise see the field studies by Jean-Pierre Hassoun on MATIF. In the United States see N. Fligstein, "Markets as politics: A political -- cultural approach to market institutions", American Sociological Review, 61, pp. 656-73, August 1996; C. Smith, The Mind of the Market, Totowa, New Jersey, Rowman, and Littlefield, 1981; Auctions: The Social Construction of Value, Berkeley, University of California Press, 1989; M. Y. Abolafia, "Hyper-rational gaming", Journal of Contemporary Ethnography, 25 No. 2 pp. 226-50, July.
(1.) Financial markets can be defined as the totality of movements of capital relative to purchases and sales of mobile securities, especially stocks and bonds. These securities are exchanged and quoted on a stock market.
(2.) According to John Murphy, "technical analysis is the study of the development of a market, mainly on the basis of graphs, whose aim is to forecast future trends". However, it should be pointed out that there are certain qualifications: "Technical and graphical analysis have long been seen as synonyms; this is not so true today. Indeed, the primary tool of technical analysis is the graph, the famous American chart which gave its name to chartist analysis ... For many years now, a branch of technical analysis has been developed, called (for want of a better term) statistics, in opposition to graphics" (cited in Thierry Bechu and Eric Bertrand, 1998: 16). Moreover, it should be noted that, in markets, it is possible to identify two categories of agents: chartists and fundamentalists. The analyses of the former differ from fundamental analyses in that they are generally addressed to speculators interested in the long or medium term (one to three months) and not in daily stock-market movements. This kind of analysis allows one to estimate the value of a share determined by economic criteria specific to the relevant enterprise. This value, called real, is not specifically linked to the markets themselves, but rather to general factors and to national and international contexts. For the analyst it's a question of measuring the gap between the real (or intrinsic) value of a share and its progress in the stock market. This analysis in particular allows him to determine if the price of a security is justified or unjustified and thus to decide which shares should be sold or bought.
(3.) On the different modes of `believing' refer especially to Needham (1972), Pouillon (1993), Lenclud (1994).
(4.) According to the detractors of chartism, it is because the chartists' erroneous propositions are considered by them as true that these same propositions lead to behaviour that ends up being confirmed by the facts. This phenomenon is known as "self-fulfilling prophecies". In relation to this term, or more precisely this concept, about fifteen definitions are available. However, one can refer to the works of the sociologist Robert Merton, who used the term self-fulfilling prophecy for the first time in 1948. "A self-fulfilling prophecy is", according to this author, "a definition of a situation that is at first false, but this erroneous definition gives rise to new behaviour, which makes it true", in R.K. Merton, "The self-fulfilling prophecy", Antioch Review, 8, No. 2, 1948, pp. 193-210. Translated by H. Mendras in Merton (1965), Elements of Sociological Theory and Method, Gerard Monford, pp. 140-61.
(5.) We should recall here, too, the famous moving averages, one of the oldest and widespread models. Usually this model is classed with traditional models. This method, being in a sense a primitive form of filtering, T. Bechu and E. Bertrand (1998: 38-41) prefer to classify it not as one of the traditional models, but as one of the numerical filters belonging to modern analytical models.
(6.) For more details about the different categories of models of technical analysis, see Bechu and Bertrand, op. cit.
(7.) We borrow these terms from M. Eichinger (1996: 109).
(8.) We should emphasize that speculation is an activity that can take many forms. In fact, as Nicolas Bouleau (1998: 108-20) suggests, three different kinds of speculation can be identified: 1. economic speculation (linked to economic activity and to economics as a science); 2. mathematical speculation (which depends on the complexity of financial instruments and on the imperfection of the models used for their management); 3. psychological speculation (which refers to the psychological dimension of the stock-market community). According to Nicolas Bouleau, `chartism' is at the same time mathematical and psychological speculation. To be more precise, we should add that in practice these three speculative areas are not independent; speculators regularly and sometimes simultaneously survey the economic, psychological, and mathematical field, and sometimes a fourth field: the legal field (where it's a question of playing off the disparities in fiscal regulation between countries).
(9.) Traders are operators who sell and buy shares on the floor of the market in order to make a short-term profit.
(10.) Didier, ex-individual stock-exchange negotiator (NIP), in February 1998.
(11.) When it comes to predicting the behaviour of financial markets, C. Walter (1996: 128) distinguishes "two perspectives, two different questions, of which each has its own analytical instruments, its own intellectual tools, and its own populations". On the one hand it is possible to apprehend the market `directly', by paying attention to the direction of trends -- upward or downward -- in order to determine where, when, and how to sell or buy; on the other hand, it is possible to oppose this so-called `forecasting' perspective to a so-called `distributional' approach to market fluctuations. This time it's a question of taking account of the law of distribution of stock-market variations. In other words, this comes back to calculating and forecasting - according to the law of probability -- how all the possible variations will be able to affect the market. To clarify these two approaches to chance, I would say that it's a bit like the game of heads and tails. Now, it is possible to concentrate on the probability that a particular face will turn up: the probability, according to a distributional approach being, then, 1/2 for heads and 1/2 for tails; in this case it's a question of determining, according to the forecasting approach, which side will appear at the next throw. However, such a perspective leaves scientists baffled in that this task seems to them to be quite impossible. In fact in a distributional approach, the past is not a determining factor, since the present has no memory, so to speak, of its past. Thus, for many experts, especially university researchers, stock-market variations make up precisely that category of `memory-less' phenomena in which only evaluation and quantification of risk -- according to scientific methods -- remain in the realm of the possible.
(12.) Some operators, especially English speaking ones, use typically American terminology to qualify market trends. They thus speak of `bullish' for rising markets and `bearish' for falling ones. For the semantic and anthropological implications of the vocabulary used in the stock exchange, see Jean-Francois Bare (1991).
(13.) See Keynes (1969 ). For the behaviour of speculators, see below, the section entitled `Chartism: cultural and psychological logic of the market'.
(14.) On the strategic effectiveness of establishing an illusion of reality, see Hans Vaihinger (1965 ).
(15.) Moreover, it should be noted that the present attempt to give evidence for the importance of the profound identification between global reality, markets, and graphs -- or of the correspondence between micro (charts) and macro (markets and global reality) -- in chartist theories seems to be confirmed by facts. For chartists, prices generally constitute the raw material for constructing graphs, these being supposed to express not only political, economic, and social events, but also the way in which speculators will anticipate or have anticipated events related to the world of finance.
(16). By "prophetic practice" I mean an activity of putting into symbolic form imponderables linked to events, using a technical means itself supposed to be unchangeable (not subject to contingencies).
(17.) As we shall see later, other reasons relating to the game of speculation can be invoked to explain this idea of the market understood as an entity (see the section entitled `Chartism: cultural and psychological logic of the market', and the conclusion).
(18.) Here I draw on the works of Dario Sabatucci (1975), and more particularly on his concept of `rite' which was elaborated in the course of his comparative reflections on historical artefacts culled from Egyptian civilization, from ancient Greece, from ancient India, from Mesopotamia, and from ancient Rome. In rehearsing a classic opposition of religious history and religious ethnology, Sabbatucci understands `rite' in terms of its opposition to `myth'. However, this opposition -- which has often been formulated in terms that see rite as a dramatic art intended to update myth -- requires moving to the recognition of a functional dissociation between myth and rite. This dissociation could, according to Dario Sabbatucci, be expressed in terms of an opposition between `telling' and `doing'. Myth tells us what has been done or defined in the meta-historical past, by beings that are now irrelevant, and which can no longer be done. Rite, on the other hand, does what myth has neglected to say and what can still be done and therefore specified today (myth actually concerns `immutable' reality, whereas rite serves to formalize the formless, to order disorder; in short to intervene in `mutable' reality). In this perspective, structured around the terms `myth/rite/ history', myth, which arises from meta-history is opposed to rite which thus seems like a cultural device whose function is to control events. Indeed rite, according to Sabbatucci, would then be situated in a zone of immutability, its effectiveness residing precisely in its stereotyped kind of `meta-historical' rigidly fixed action. However, this action is supposed to produce effects in the historical order, all rites aiming to introduce a change or modification to the present state. It should be added that the stability of rite as well as its effectiveness are guaranteed by its empty form, by its strictly `procedural' essence; in short by its objectivity independent of the variables upon which it acts.
(19.) I have introduced a division at the heart of this exposition -- identifiable by points (A) and (B) -- in order to make more obvious the internal links of these statements (chartist and prophetic).
(20.) Umsatu: a kind of raised red patch or mark, often congenital, affecting the skin.
(21.) This proposition is taken from a tablet from the Palaeo-Babylonian era on which is inscribed a tract on a precise point of physiognomy [Jean Bottero, 1974: 71-195]. [See, in particular, p. 174].
(22.) It should be noted that some chartists, those that are most experienced, constantly identify and add new figures, new combinations that are increasingly complex and subtle, whose secret they often guard jealously.
(23.) The actualism of the modern world seems to be an inheritance from Roman actualism. In Rome, indeed, actualism was manifested in the primacy of human will understood as an actual cosmographic principle, in the sense that it ordered and structured the world as far as it could and allowed a constant revision of the terms of reality -- the world not being understood as an immutable fact. What the Romans understood as the `sacred' was actually the product of legislative and legal activity in public and civil cases: that of the juriconsults, the legislative assemblies, and the tribunals [Sabbatucci, 1975]. This amounts to saying that for the Romans nothing (not even the sacred) was given a priori. All that was given a priori (including myth as an expression of a discourse that fixes the order of the world for ever) was rejected in favour of what was willed. It was man's will -- whether that of those who made the history of Rome or of those of the legislative or judicial bodies -- which made reality. And this will was always at work in historical reality in order to choose, and choose again, with absolute responsibility, the order of the world.
(24.) Peter, a small speculator, in March 1999.
(25.) We shall not go into detail here about the complex mechanisms relating to imitative or self-referential phenomena. The point is merely to set out their main features. These phenomena have been the subject of numerous studies. See especially the stimulating works by Jean-Pierre Dupuy (1991, 1992) and Andre Orlean (1989, 1999: 57-192).
(26) One could add that, in offering a common reference on what kind of reality agents will construct, one point towards which everyone's opinions can be focused, the configurations revealed by graphs contribute to the standarization of choice effected by a group of experts using the same model. In consequence, it is clear that the self-fulfilling dimension of stock-market forecasts is not a problem for chartists -- quite the contrary -- since that dimension is at the basis of speculation that depends on the collective behaviour of agents.
(27.) In regard to manipulations, Marc Eichinger (1996: 96) affirms that "any contributor to the pages of market movement information can show the price he wishes, even if it departs a great deal from reality. In that case it's a question of naming a price for information which costs the quoter nothing. The publication of false prices can lead a potential client into error, or disrupt adversaries who take an opposite position".
(28.) J.M. Keynes (1969 : 170) didn't fail to identify this need to take note of majority opinion: "It would be unreasonable", says the author, "to buy for 25 a share whose value one estimated at 30 because of its probable return if one thinks that the market will value it at 20 in three months."
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Francis Mobio (Universite de Paris I.)
Francis Mobio was born in France in 1965 and studied anthropology in Bordeaux and Paris. He is currently preparing a doctoral thesis for the University of Paris I on an anthropological approach to financial markets. His research explores the cultural explanations underlying the most representative institutions of the contemporary world. He is the author of Le rituel footballistique: entre religion et droit, in Europaea, Journal des Europeanistes.
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