My Trading Licks

Got FOMO?

I referred to this condition in a previous post as Mistake #4, the fear of a missed opportunity, which plunged me into trading a stock without really knowing what the heck I was doing. The abbreviation for Fear of Missing out, or FOMO, was added (along with selfie and twerk) to Oxfords Online Dictionary in 2013. Since then every significant rise in stock prices has been dubbed a “FOMO rally,” as if investors are incapable of doing anything that isn’t fueled by anxiety or fear. Maybe that’s somewhat true because it is said that stocks climb a “wall of worry,” (otherwise known as WOW) and then take the “elevator down.”

It was certainly the case for me. I was using all sorts of scanning software to track the potential breakouts of leading stocks. At one point, I was so determined to catch them all, that I set price alerts on my phone for almost every one that would come up in the scan. The Pavlovian alert tones sent my limbic system response on a wild emotional roller coaster ride. There were all sorts of cool sounds available too, like the Wall Street Bell, cash registers going Ka-ching, Cramer’s voice saying “Buy, Buy, Buy.”

To all of you married traders out there… if there’s one sure way to annoy your spouse, this is it. The alerts would of course go off anywhere and anytime; during family meals, afternoon walks, intimate… well you can guess why it became a problem. Changing the sounds periodically didn’t soften their intrusiveness and turning off the phone’s speaker… well, then there’s no point in having an alert then, is there?

So soon after it became apparent that I just wasn’t going to catch every breakout known to man, my FOMO was replaced by something even more terrifying… the fear of future regret (FOFR; not officially a real word yet). You know, thinking stuff like: What happens if I don’t buy Facebook now and it doubles next year? What happens if it tanks? (BTW both did end up happening) Will I regret not having kids, even if there’s a chance one of them will turn out to be a demon seed like I was? As you can see, these kind of thoughts can eat away at you, and are not the kind of things you want to be thinking about, especially when you’re on the beach with your wife and your phone is telling you to “Sell, Sell, Sell.”

I’ve started calling it FOWAH, Fear of what already happened, to help remind me to move Fowahd (pronounced with a Boston accent, except leave off the “d” in honor of my neighboring town of Medford, whose residents affectionately refer to in their mother tongue as “Medfah“). When you get to that point of future regret, all the stuff you once worried about would have already happened; i.e. water under the bridge, beyond your control, you know, so why sweat it now? Compared to FOWAH, FOMO is not so bad.

So what’s in store for the near future of the S&P 500 (NYSEARCA:SPY)? The recent dip has got a lot of folks worrying that the heaviest damage is yet to come. Any plunge below the 200 day moving average is cause for concern, but let’s first take a step back and look at a similar scenario and how it unfolded.The chart below of 2010 shows TVO (Total Volume Oscillator), which uses volume data to graph Accumulation and Distribution, and how it relates to the S&P. A low reading, like the ones that happened in February (-7.1) and May (-7.7) of that year, indicate a highly oversold market. After everyone dumps all the stocks they thought were overvalued, guess what happens? The market comes back and those same sellers come down with a serious case of FOMO-itis (another new word contribution to the lexicon) and start buying up again like crazy.

Now here’s the chart for 2014 so far:

Hmm, same low reading (-7.3) around Valentine’s Day (which was a 6% correction), but this year we didn’t have the “Flash Crash” in May to break up the party. After nearly two solid FOMO quarters, last week TVO gave us a -9.5 (keep in mind the oscillator has never gone below -9.9 since 1978), so right now the vacuum created by all of the recent distribution is quite huge. (This is a good place to insert some kind of Newton’s Law analogy, but I think you can see where this is going.) We did get a bounce, so some of the heat is off for the time being, but seeing the index fall right back below the 200 day without some significant move in the other direction is sort of like, well… like something even Newton would have a tough time explaining.

So for those of you that just can’t get enough of acronyms and buzzwords to help you remember things about investing, here’s one way to sum it up (brace yourself)… Later this year, as you’re watching stocks rise back up to their September highs and you’re feeling that FOMO, better get on the WOW quick ’cause it might lead to FOFR, which could have all been prevented if you had avoided FOWAH thinking at all costs… And feel free to quote me on that.