The most powerful force in the market is fear. When fear of losing takes hold it creates powerful downside momentum and when fear of missing out (FOMO) takes hold it creates powerful upside. The recent market action is ideal for creating fear of missing out.
The indices have gone almost straight up so far this year and there are very few money managers that have been able to keep pace with their benchmark indices. The only way that you can outperform in this environment is to be fully invested and holding higher beta names (stocks that move faster than the indices).
The nature of money managers is that they don't look to make up underperformance by waiting for the market to reverse. They make up performance by chasing stocks that they hope will move up faster than the overall market. Today one of those stocks is Facebook (FB) .
Fear of missing out also drives aggressive dip buying. Many market players dislike chasing strength but they will buy very minor pullbacks instead. This is why uptrending markets can be so sticky to the upside. Strong markets don't just suddenly fall apart.
I'm disappointed that I am not more heavily invested but I'm not worried about missing out on gains. If the market continues to hold up more charts will develop and there will be plenty of opportunities. My methodology is to take some partial profits in stocks that have made good size moves recently like Sarepta (SRPT) , Aphria (APHA) and Pyxus (PYX) .
On the other hand, there are still charts that are developing well and may offer good entry points like Herbalife (HLF) and Moderna (MRNA) .
The Fear of Missing Out is the main driving force in this market but that doesn't mean that we have to embrace that emotion ourselves. Stick to your methodology and don't let worry of underperformance push you to shift your approach.
(Facebook is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells FB? Learn more now.)
