FOMO Rallies as a Catalyst
The market’s correction was swift, and what was initially a short squeeze off the lows shifted into a FOMO-induced (FOMO = fear of missing out) buying rally. This is one of my favorite kinds of lows!
Why? It may start with extreme fear (as evidenced by the put/call ratio), but what happens is that as the buying to cover continues, people realize they missed the low, and even more volume buying flows in. You can see this when reading the charts, precisely the intraday market internals, as volume picks up towards the end of the session and relative strength winners go out on the highs at the end of the day. This is indicative of buyers making emotional buys before the market closes. It’s also one of my favorite signs that the market will continue to rise.
Of course, it won’t go up every day forever, but the key here is that the buying continues long enough to break through overhead resistance. A quick bounce off of the lows that simply rallies into resistance isn’t the same thing as a short squeeze turned FOMO-induced buying rally that breaks through the overhead barriers that were created.
Check out a screenshot of the Nasdaq below:
On this chart, you can see how the Nasdaq held a critical Fibonacci cluster at the low, the V-shaped bottom that formed, and the high volume buying (white arrow) that occurred that caused a shift in trend (candles changing from red to yellow to green and light green), and ultimately how the Nasdaq broke up above the moving averages.
Making Money with Charles Payne
Yesterday, I joined my friend Charles Payne on Fox Business’s show Making Money. We discussed a few of my favorite topics, including the recent correction, stocks to buy, and upcoming earnings as a catalyst. Learn more below:
During this correction, I have been buying more long-term stocks, as it’s not that frequent that we get such a deep dip, especially one that occurs so rapidly. Yes, of course, I believe there will still be more volatility as we get into September/October/November, mainly because it’s an election year, but that doesn’t mean I’m going to pass up this opportunity to buy!
I’ve been adding Amazon (AMZN), Microsoft (MSFT), the Nasdaq Index ETF I buy, the Invesco QQQ Trust (QQQ), my favorite semiconductor ETF (SMH), and Palo Alto (PANW).
Why Palo Alto? What you could have looked at in this stock (for next time) is primarily the underlying fundamentals. Yes, the stock traded lower after earnings three quarters in a row (until now), but that was primarily because it had done well for so long post-earnings and expectations were so high. It just needed a breather. After the pullback, expectations were lowered as people questioned it and the space, but the underlying fundamentals were still strong. It was just consolidating, preparing for another big move that needed a catalyst. That catalyst was earnings.
