Beware of FOMO

“There’s only one problem with your comparison to early 2022,” a trader friend said to me yesterday. “Back then, it was the dog sh*t meme stocks that were rocketing higher. Today, it’s big-cap companies with high growth rates in earnings and revenue.”

My friend had read Tuesday’s Market Minute essay. And he was eager to point out that since we weren’t seeing wild, speculative activity in dog sh*t stocks, the market could still press a lot higher.

Shares Volume Skyrockets

With that argument in mind, please take a look at this chart…

This is a chart of the action in MicroCloud Hologram (HOLO), a China-based holographic technology company.

The stock started this week trading at $1.80 per share. Yesterday, it opened at $40. That’s a 1,900% gain.

Just as impressive is the volume – which is typically less than 200,000 shares per day – rocketed to nearly 200 million shares traded on Wednesday.

What was the news that caused the spike? Did the company discover a cure for cancer? Did it create a time-traveling machine? Surely, there must have been some breakthrough announcement that caused this move.

FOMO Is a Powerful Motivator

Here is the only headline for HOLO this week…

“MicroCloud Hologram Plans to Join the Communications Industry Association”

That must be one heck of an association if merely planning to join it creates a 1900% gain in a stock.

Of course, that headline has nothing to do with the rise in HOLO shares. 

This was a microcap stock. At $1.80 per share, and with less than one million shares outstanding, the entire company was valued at less than $2 million on Monday.

A little bit of buying pressure can push these types of stocks a long way. All it takes is a posting, or two or three, in a financial chat room (or two or three). Then momentum kicks in. And then FOMO takes over.

FOMO (fear of missing out) is a powerful motivator. As much as people might fear losing money, they are far more afraid of not making money if everybody else is.

That’s why people paid crazy prices for real estate back in 2006. That’s why internet stocks reached bubble valuations in 2000. That’s why the Dutch put their entire life savings into one tulip bulb back in 1635.

FOMO is why meme stocks were all the rage in 2021. And it’s why HOLO blasted higher this week.

As quickly as stocks can go up when FOMO kicks into gear, they can come down twice as fast. Just ask anyone who rushed to buy GameStop (GME) three years ago.

My trader friend is right, though. This time, FOMO seems to be concentrated in a small group of big-cap, well-known companies.

Somehow, though, I don’t think that makes the situation any more acceptable or any less concerning.

Best regards & good trading,

Jeff Clark
Editor, Market Minute