Risk Creeps Higher, but These Opportunities Remain 
Eric Fry | What does FOMO look like? It probably looks a lot like the chart below. 
And also like the next chart… 
FOMO is, of course, the acronym that stands for "fear of missing out." And this catch-all term aptly describes the emotion that has been powering the stock market to all-time highs. This unique kind of "fear" is the one that causes rational individuals to pay irrational prices for high-flying stocks… or to pay any price whatsoever for a stock, as long as it's a high-flying one. When FOMO is the dominant investor sentiment, little else matters. Here's the Stock Symbol of Eric Fry's Next 500% Winner In most market phases, investors pay attention to fundamental factors like earnings growth, and valuation… or least pay lip service to them. But in extreme phases, fundamental considerations take a backseat to raw emotion – in particular, the emotion of FOMO. This emotion takes many forms, like the blue line that runs across the first chart above. That line tracks the put/call ratio during the last 24 years. The most recent data point on that line (at the far right of the chart) is very close to the all-time low this gauge hit in 1999, shortly before a major stock market peak. Why should we care about this stock market trivia? Because it might not be trivial… An Unmistakable Warning Sign The put/call ratio is one of the old-time sentiment gauges that investors use as a "contrary indicator" of future stock market direction. If this gauge shows that investors are anxious, that's a hopeful sign for stocks. But if it shows that investors are exuberant, that's a bad sign for stocks. The logic behind contrarian indicators is simple: Investors tend to become extremely bullish at major stock market peaks, just before a selloff begins. Conversely, investors tend to become extremely bearish at major stock market bottoms, just before a new upswing begins. These patterns have repeated themselves over and over again throughout the long history financial market booms and busts. That's why many successful investors pay attention to sentiment gauges like the put/call ratio. The most recent reading is the second-lowest one of the last 24 years – meaning it is the second most bearish indicator of that time frame. That's an unmistakable warning sign that's as unnerving as a bright light heading toward you in a train tunnel. To briefly review the basics of stock options, a put option is one that profits from a falling stock price, while a call option is one that profits from a rising stock price. So when option traders expects a particular stock or index to fall, they buy put options. When they expect a stock to rise, they buy call options. Fascinating Story Behind America's Richest ZIP Code Is Going Viral – Watch Here Therefore, when you tally up the outstanding number of open put option contracts on the CBOE, relative to the outstanding number of call options, you can determine the overall mood of option traders. If they're loading up on puts, they're anxious or defensive. If they're loading up on calls, they're optimistic – and maybe even a little cavalier. Today's reading falls at the far end of the optimistic/cavalier spectrum. As a contrary indicator, that's a warning sign. But not the only one. The second chart above presents a second picture of extreme investor optimism – also a warning sign. This image shows that some of the most flawed stocks in the entire market have been performing brilliantly, relative to most high-quality stocks, like the ones that populate the S&P 500 Index. This outperforming index contains the 50 most heavily shorted stocks in the Russell 3000 Index. In general, therefore, these stocks possess such obvious weaknesses that investors are betting heavily on them to fall, by selling them short. Short sellers are not always right. In fact, they haven't been "right" about much of anything lately. But as a group, they have a good nose for troubled stocks. And yet, troubled stocks are the ones that have been producing stellar results. They have been going up. And because they've been going up, investors buy them more aggressively, which makes them go up even more. Before you know it, a collection of troubled stocks is racking up a 300% gain in less than a year. As this example shows, buying seriously flawed stocks, simply because their prices are rising, can succeed for brief periods of time. But it is usually a reliable strategy for losing money. And we've seen this movie before… A Tough Way to Make a Buck Now, let's take a look at one final chart showing four "winning" but deeply troubled stocks from the late 1990s. Thanks to the spectacular dot.com bubble, each of these stocks soared more than 1,000% during the 12 months preceding the early 2000 peak – dramatically outperforming the S&P 500's meager 10% return over that time frame. 
But these "winners" would become almost instant losers. All four of them "zeroed out" completely by the end of 2002. Remember, history never repeats itself, but it often rhymes. February of 2021 bears an eerie likeness to February of 2000, when the dot.com bubble was bursting and a major bear market was just getting underway. Buying stocks in the middle of FOMO frenzy is a tough way to make a buck. Some of the most renown investment sages of all time have cautioned against that temptation. Eric Fry: Sell These 25 Stocks Now Legendary investor Sir John Templeton, for example, famously remarked that bull markets "die on euphoria." Templeton's entire observation bears repeating: Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. I quoted that line last March, during the depths of the wicked COVID-triggered selloff. But I was quoting it, not to warn against the risk of buying stocks in a selloff, but to warn against the risks of not buying them. To kick off that alert I wrote: FOLM might soon become FOMO… At this moment, the fear of losing money (FOLM) is the prevailing investor sentiment. But I would not be surprised if this sentiment flipped soon to the fear of missing out (FOMO). Back then, investors were the opposite of confident and cavalier. They were terrified. Doom and gloom hung over the market like a guillotine blade. But after 11 delightful months of steadily rising share prices that has produced a staggering $50 trillion of stock market wealth, the doom and gloom has dissipated. FOLM has, indeed, become FOMO. At times like these, it's helpful to remember that financial markets are cyclical creatures. They cycle through bull markets and bear… through episodes of greed and fear. Whenever either one of these sentiments reaches an extreme among the investing public, the stock market typically reverses course and heads in the opposite direction. That's why so many of the greatest investors throughout history pushed themselves to invest during the stock market's darkest hours. These investors understood, correctly, that crisis creates opportunity – the opportunity to achieve extreme investment success that accumulates wealth. But they also understood that "chasing" after high-flying "story stocks" is a dangerous game. Today's stock market offers no lack of dangerous highfliers. Risk is higher than average. That's clear. But many great opportunities remain in select portions of the market. Tread carefully… and selectively. Regards, 
Eric Fry
P.S. Hundreds of thousands of folks saw my "Technochasm" viral video from earlier this year. Well the whole world has changed since then… and I'm back to talk about the Technochasm, the biggest megatrend in investing, in ways I couldn't before… and discuss opportunities for even bigger market gains… the kind to keep you from falling behind. And I'm bringing along investing legend Louis Navellier to join me on camera for the first time ever. Click here to check out our conversation – and to get our No. 1 stock pick right now. NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article. | 
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