FOMO 7 Not Magnificent 7 | Podcast Episode #378

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

0:16
Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market.

0:33
In today’s episode, we’ve got an e-mail from a guy. I’m going to give him the good old Florida redneck name of Billy.

0:39
And Billy writes, Dear Ryan, playing off your recent episode where you talk about missing out on the recent market rally.

0:46
How do you decide how and where to enter into a new trade? The market is insanely overbought, as you know.

0:52
All resistance levels on SPY and QQQ have been blown through. I don’t know what to do personally.

0:57
Do I look for a top and try to short the pullback? Or do I wait for a pullback and try to get long on the market after this insane run hire?

1:05
Any advice would be appreciated. Sincerely, Billy.

1:10
Good question, Billy, and I’m happy to answer that. As you know, most pretty forthcoming about my successes and failures and training, particularly on this podcast.

1:20
I did a podcast just recently talking about how man this epic rally off the lows.

1:25
You know, I the rally started when I was just starting to cover my short positions from over the past three months.

1:30
That was great. That’s really good short positions that I was closing out in in late October and early November.

1:37
But then you had this run that was just crazy. You had the FOMC statement, I think it was on November 1st and you got this huge rally in the last hour of trading.

1:44
I went ahead and said, you know what, I’m not going to go ahead and trade that last hour.

1:48
I’ll see how the next day opens up and try to trade accordingly. Not expecting like, well, I think it was like a 2% gap higher the next day.

1:56
Don’t hold me to that, but it was a massive, I mean you just look at the charts, it was a massive gap higher.

2:00
So I got kind of locked out, pushed out, whatever you want to call it, trying to be able to get in on this market rally and it was frustrating even then.

2:06
The next day there was another gap and and holy cow, you just wonder to yourself what where do you get in at?

2:12
Because by this time the market’s already getting into overbought conditions and it’s been in overbought conditions ever since but yet it still keeps going higher.

2:20
So the feeling there and I’ve had this feeling I know a lot of traders that’s missed the rally has had this feeling as well as throw in the towel and just get along with them.

2:28
Better late than never, right? As they people like to say, but it’s that very mentality that usually ends up top ticking markets and really setting you up for like disaster essentially for the portfolio because you’ll get in at the very height. You’re also going to find yourself usually trying to make up for the lost gains by over trading, by over positioning yourself in individual trades.

2:48
You might take out, you know, 30% position sizes instead of your typical 10% position sizes. So you’ll make some of these mistakes that will have a dramatic impact even if there’s like a two or three percent pull back. So yes, we are extremely overbought, to extremes.

3:02
The stock market oscillator is, which is a proprietary indicator. I’m actually been working on rolling this out to everybody. It’s one that I created for myself. It’s not like the SharePlanner reversal indicator. This one’s a little bit different, has a range of zero to 100 with your typical 20 being oversold, 80 being overbought, but it’s something I’m actually working on rolling out to the public.

3:20
Anyways, this indicator, it’s sitting at 81 right now and that’s kind of crazy for that indicator. I mean that’s extremely, extremely overbought and it feels like that we’re never going to go back down. So then again, do we just short it here because it just seems too high to continue to.

3:34
It looked too high two weeks ago. It looked too high a week ago and you get one day of selling and the next day it’s a gap higher. I mean, there’s no kind of pull back. There’s no consolidation.

3:44
There’s just complete ignorance of risk and total infatuation with reward. I’d say over the like last week or two in particular, we used to call them Fang stocks.

3:56
That was originally Facebook, Amazon, Netflix and Google. And then you got Microsoft in there and then you ended up getting NVIDIA and Tesla and then ended up turning into this really long acronym for FAANNGMT. It was like 8-8 letters, right?

4:12
And now they’ve narrowed it down to seven, which I’m assuming the 7th means that Netflix got the boot.

4:17
So they called the Magnificent 7 or the Mag 7 and everybody’s wanting to use this phrase now ’cause probably people are tired like myself as typing out FAA A and and GMT, but is it Mag Seven really the appropriate name for it?

4:28
I mean, some of these companies like you take Apple and and some of these others, I mean they got falling revenue yet increasing stock price. It’s kind of magnificent, I guess I would say.

4:37
But these stocks aren’t as rosy as everybody’s being led to believe. They’re being hyped to, to no end.

4:43
So I think it’s more like the FOMO 7 than it is the Magnificent 7. So I’m just going to call them the FOMO 7.

4:48
Honestly, I have no desire to call them Magnif. It’s almost like we’re putting them on this like pedestal, like idolatry, like, oh, we got to worship at the at the altar of the mag seven.

4:56
No, because in the end what’s driving it up?

5:01
Hype, FOMO. Pensions.

5:03
This is all pensions buy for the most part they’re obsessed with this stuff. I’ve heard from people about how people managing their accounts they will only buy stocks from the FOMO 7.

5:12
And if the FOMO Seven ever does see reality, like NVIDIA has something besides 116 PE, then it’ll be the I told you 7.

5:19
So regardless, it feels like this market’s never gonna go back down again.

5:25
Every day you wake up it’s up another 70 points on the NASDAQ and the pre market and everything. Holy cow, this thing’s never gonna take a breather.

5:32
If I would have just bought earlier this week, I would be up 4% or 5%. And it’s true.

5:36
But the problem is, is that there’s no real way to put the stop losses. Then you were logically, Where are you gonna put a stop loss at?

5:42
On Microsoft or Apple or Amazon or Netflix and Google, you’re there’s no logical place to put a stop loss there.

5:51
You can put it below the yesterday’s lows, I guess, but there’s not much of a basis on any of those for putting it below yesterday’s lows.

5:56
When you look at this overall market, look at it in its entirety. You got 11 sectors, guys.

6:00
The top two sectors, XLK, XLC, That’s tech and communications. One’s up 48.7% as of today, the other’s up 48.3%.

6:10
Those are massive moves. What’s driving those?

6:13
Well, the tech. You have Apple, that is up 47%. That’s a $3 trillion company. Then you have Microsoft, a $2.8 trillion company, up 57%.

6:22
Actually 58% if we’re just gonna round up to the nearest total number. And then you have NVIDIA up 235%, Broadcom’s up 74%, Oracle’s up 42%.

6:34
I mean these are massive, massive companies, but the ones to be most consumed with is these trillion dollar companies.

6:39
NVIDIA is 1.2, Microsoft 2.8, Apple 3 point O or thrift 3 trillion I guess. What about the communication sector?

6:49
Now one thing about the communication sector that I would remind you about is that for a long time this is more of like your Verizon’s, your AT&T’s, Disney, Charter Communications, Tmus.

6:57
But now they’ve got Google, Meta and Netflix in there because they’re considered communications according to XLC, which is the sector based communications ETF.

7:05
So Google’s up, this is a $1.7 trillion company. It’s up 57%. Then you’ve got Meta up 183% and Netflix up 62%.

7:10
So Meta is an $867 billion company, while Netflix, I guess they’re getting the boot because they’re only a $211 billion company out of the mag 7.

7:25
But this is your big driver for the communication place. Outside of that, I mean, I think I’m pretty sure that Google’s bigger than every stock by itself listed in XLC.

7:31
That’s pretty incredible. So how Google goes, so goes communications. And then you got discretionary, it’s up 30% and that’s going to be Amazon up 75%. That’s going to be Tesla up 89% on here.

7:51
Amazon being a 1 1/2 trillion dollar company, Tesla being a $766 billion company. These are the companies that are moving the market in extraordinary ways.

8:00
And then the other sectors outside of them, industrials up 7.9%, materials 3.8 and financials up 3%. That’s the difference between the other three sectors that are in the green this year versus the first three sectors that I read to you that were all up 30% or more.

8:17
The others are not even in single digits. And then you have five sectors, real estate, energy, healthcare, staples and utilities, all in the red, utilities being in the double digits, right, because who’s going to be in utilities when you have tech going up over 48%? Nobody is.

8:28
And if it wasn’t for the rally over the last few weeks, there was only prior to this rally, there was only three sectors in the green on the year, three. I think that’s a healthy market. It’s not.

8:38
So going back to the question that Billy’s asking here, do you short it?

8:42
No. You could have made the same argument when the tech sector was only up 30% on the year or even 20% on the year you shorted there. I mean, it’s really the same rationale.

8:50
So no, I would not short it, but what I would say, look at it in the bigger context. Will this trajectory, and it’s like a 75° angle practically on the tech sector, on the S&P, on the NASDAQ.

9:02
I mean very, very steep trend lines. You can’t even really draw a trend line, honestly, because there’s no higher lows.

9:08
It’s just straight up. If you’re to draw a line of what that straight up looks like, it’s at about a 75° angle.

9:14
And for context sake, a 45° angle is considered, you know, about as steep as you want to get to be able to sustain those kinds of moves over time.

9:21
There’s no pull back. It’s beyond 45° and we have to look at it in the bigger context. Can this be sustained if this is part of a much bigger multi year rally that’s gonna take place for the next one to two maybe let’s even be more, let’s say three or four years?

9:32
Will there not be other opportunities to get in and still make a King’s ransom on the market?

9:40
Yes, there will be, but it’s not. And you’re getting in at this top here where there’s been no pull back where it’s extremely overbought.

9:47
I mean historically overbought, some of the most overbought readings that I have seen in years.

9:53
And for additional context, when it gets to the flip side, when we get this oversold, this is when I’m wanting to be a massive buyer in the market.

10:00
Now it’s a little bit different. I don’t want to syp and massive shorter because the market can still go much, much higher because on one end you have Infinity, on the other end you have zero.

10:06
You know that the lowest ultimately a stock could ever go would be 0 to the upside it’s Infinity.

10:14
So I don’t really want to get margin squeezed because I let a stock just run completely ape against me.

10:19
So you have to be careful about shorting it. And then the bigger picture, if this is a market that can be sustained, there will be plenty of opportunities to get long on the market.

10:26
That’s what.

10:29
Look, I’m not saying this because it’s easy for me to say it. It’s not.

10:33
It’s hard for me to even believe those words when I’m just seeing it go up every day.

10:37
It’s frustrating. I feel like I’ve had this like dull headache for the past 2-3 weeks just being annoyed by the irrational behavior in the market.

10:44
And I probably wouldn’t have been that annoyed by the overall market had I been able to get long on it.

10:48
And I think that I was never unwilling to get long on it. But under the conditions, under the circumstances, and it sounds a little bit excuse driven, what I’m saying, but it is the honest Dingen explanation that FOMC statement screwed it up for me.

10:56
And when you see me on Twitter, I hate the Fed.

11:04
I honestly despise everything about the Fed. And there’s another reason for me to hate them even more, because they do these things.

11:11
And if you’re trying to be a little bit on the prudent side, and I admit too, I am a more conservative person when it comes to swing trade, and there’s a lot of people that are far more aggressive than me.

11:19
I am looking to keep stop losses tight. I’m looking to maximize reward. I’m wanting to get that 2 to one on a regular basis.

11:26
I don’t like 1 to 1 trades. I like to get 2 to one, three to one on my swing trades.

11:31
And so when I’m looking at that and I’m seeing like this last hour rally on on the FOMC statement on November 1st and it just keeps taking off.

11:37
I’m going to wait till the next day and then you get that freaking gap. So it did make me irate but I have to go back and look at the bigger picture and the bigger picture suggests look Ryan if this is going to be a major bottoming for the market following the three month sell off that we got from July, August and September and or October.

11:56
I guess it was like late July, right until late October. If that’s the end of that sell off, then there’s gonna be plenty of time to get long on the market again, that’s just the way it usually works.

12:03
Again, that’s just the way it usually works. So I have to tell myself and it’s not easy like I said and I meant to tell you guys this earlier, but if you take when I was talking about the communication sector, but if you take XLC which includes Google and includes Meta and Netflix and you take those out and you look at more of the traditional communication sector that I was talking about where it’s really just like your Verizon, your Disney, your Charter, your T-Mobile and AT&T.

12:25
You’re talking about a sector that’s not up 48% on the year, but up 1%, 1%. So you get now why I say it’s the FOMO 7, not the Magnificent 7, but because Jim Cramer is all proud of himself and you know, gets to talk about it on CNBC. Everybody runs with it.

12:40
Analysts, let’s talk about analysts for a second. One of the things, I don’t know if a lot of people’s picked up on this and nobody’s, you know what, nobody really is talking about it. I might be one of the few people that are talking about it, but one of the things that I noticed with the analysts, they’re lowballing every single earnings report.

12:55
Why do you think that is? But it’s because they have huge positions. Why would they put a tough hurdle to clear on earnings reports?

13:01
If they’re loaded to the gills on these big FOMO 7 stocks, you think they’re going to give a tough estimate for Microsoft to clear?

13:09
No. When do we ever actually look at the year over year revenues and their earnings?

13:13
We don’t look at that. We really just look at whether or not it beat, oh, it beat top line, it beat the bottom.

13:18
It was a double beat. But that’s what we look at.

13:21
We don’t look at year over year decline revenues. If so, we would notice what’s going on with Apple and they’re declining revenues, but yet we keep buying up Apple.

13:27
Maybe if they say AI a few times or they can goose the stock price even higher.

13:32
Sound familiar? Why would you put an aggressive estimate on a stock for earnings if you want them to go up?

13:37
You wouldn’t. So they lowball these things, they make it to where they just tippy toe over.

13:42
They’re not increasing their revenue estimates and if they are, they’re barely doing it. Look at NVIDIA. They’re not really increasing.

13:47
I posted a chart for that on Twitter the other day. Check it out.

13:49
They’re not really increasing the revenue estimates for them. So then when NVIDIA might be experiencing growth, and while NVIDIA is experiencing some growth,

13:58
they’re not really being challenged from the analysts. The analysts want them to keep going up so they can keep goosing their shares higher so that they look good to the people who are entrusting them to invest their money for them and they’re all in on it.

14:09
And I’m not being a conspiratorial, it’s facts. Guys, look at their estimates.

14:13
They’re lowballing the crap out of all of these things. And so what I would recommend people to do is to ask yourself, when was the last time you looked at year over year estimates?

14:20
And really look at whether or not these companies from an earnings basis, year over year, over five years, and from an earnings and from a revenue standpoint look at whether or not they’re increasing these.

14:30
And the other thing I would recommend doing is checking out swingtradingthestockmarket.com. This is the website that goes along with this podcast.

14:38
With it, you’re going to get all my stock market research each and every day and you’re supporting the podcast.

14:42
In the process you’re going to get videos galore. Lots of good stuff on tech.

14:46
I just did one down, whether or not there was some good trade setups in the housing market. You’re also going to get weekly watch lists on my bullish and bearish stocks.

14:54
Plus that the stocks that I’m looking at each day for to potentially trade. So really good stuff there.

14:58
I highly recommend checking it out. I was a little irritated today, but sometimes this podcast is more therapeutic for me than I give it credit.

15:06
Sometimes I get things off my chest and you know, as a trader, you’re going to be right and you’re going to be wrong at times.

15:10
Sometimes it burdens you a little bit when you’re wrong and it annoys you.

15:14
And you know, I certainly, you know, get annoyed sometimes when you get these irrational moves in the market that just do not seem justified by any means and really unexplainable in so many ways.

15:25
So in any case, forgive me for that, but if you enjoyed this podcast too, I’d recommend you leave me a five star review.

15:31
I always do appreciate those and keep sending me your questions. ryan@shareplanner.com.

15:36
I do read them. I do try to make as many episodes as I can out of them, which is pretty much 99% of them I would say.

15:41
So keep sending them too. Thank you guys and God bless.

15:48
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15:56
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15:56
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16:03
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16:16
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

16:23
All the best to you and I look forward to trading with you soon.