|50 points is not what it used to be. |
I wish traders would trade on the Fear of Missing Out more often.
I do not mean trading FOMO as stocks are topping.
I mean looking at FOMO from an outsider’s perspective and taking
advantage of it.
The market had a decent sell off as I write this (down more than 50
points) on news of the Coronavirus.
But are we selling because of the virus or because of FOMO?
On Thursday 1/23 we had FOMO everywhere. Especially in a name like AAPL. We now have a sell off and AAPL is down about 16 bucks from the high…of FRIDAY.
So what do we do about the pounding AAPL is taking?
The keys to being able to take these things in stride is to keep a cool head when we sell off, maybe not when we rally too hard.
Last week as AAPL was hitting new all time highs I was panicking…at
least for me. I have relatives that own AAPL, I have clients that own
I was FRANTICALLY telling them to review their AAPL positions because: AAPL was at a new all time high and worth almost 1.5 trillion dollars.
AAPL has earnings on January 28th
AAPL was up 68% since August.
AAPL got to a point where the risk of the underlying continuing to go
higher vs taking dollars got completely out of whack.
All the smart money needed was a reason, all the MOMO dollars needed was a reason…
That reason was Coronavirus.
|If this sounds familiar it should. We have seen this type of price action in stocks like BYND. We have seen it in ETFs like FXI, and we have seen it in commodities like GLD. With time we will probably see it in the bond markets. |
Traders that make money keep a cool head in ups and downs. Truthfully really good traders probably leave more dollars on the table in a rally
than they do in a sell off.
The opposite is true of the general public.
I have seen a lot of sell offs in my day at this point. My office visit with
Group 1 was on the day the FED surprise cut rates .50 in 2001. I was on
the floor of the American Stock Exchange.
The market rallied hard that day because rates were dropping. The smart money, if you look back was beginning to take dollars off the table.
In 2007 after China had a really bad PMI number the market TANKED, it
then proceeded to rally for the next year.
At the same time the VIX went straight up…Why?
The smart money was taking dollars and hedging.
The dumb money was buying FOMO, the smart money was selling it.
The day after Donald Trump became president I gave an interview on
the open to BNN in Canada and said, buy the dip, why, because I thought two steps ahead.
I think the key here is that traders should trade against their emotions
trade against FOMO and in essence, trade FOMO…MORE
Which is why this is how I’m playing the coronavirus:
The airlines got absolutely smoked on the fears of this viral outbreak.
DAL has gone from over 61 to below 58 in a matter of days all on fears of this virus stopping air travel.
PEOPLE WILL STILL FLY, if they stop a little bit…THEY WILL START
The march 60 calls are surprisingly cheap for $1.25, I like owning these
as a play on viral fears backing off and playing the other side of FOMO.
When FOMO is in the air, find a way to put your account balance on an
upward MOMO by fighting that fear.
Your Only Option,
PS I’ll have another post coming on Thursday and a video for you you folks as week as well.
PPS People suffering from or affected by the coronavirus are in our thoughts and prayers.