Author Topic: CONTRARIAN  (Read 372 times)

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« on: July 06, 2016, 07:55:31 PM »

Cramer: Worst mistake you can make in a sell-off
Abigail Stevenson   | @A_StevensonCNBC
13 Hours Ago
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Cramer: Worst mistake ever made in a sell-off   Cramer: Worst mistake ever made in a sell-off
13 Hours Ago|13:39
Jim Cramer has seen what happens behind the scenes of the stock market, and warned of one huge mistake often made by investors in a sell-off.

"The * and commentators say it's too hard, that ordinary people can't invest for themselves and shouldn't even bother trying, but I know from experience … that you can do it as long as you're willing to put in the time and effort," the "Mad Money" host said.

One of the worst myths out there, he said, is that the market is always rational and makes sense. This is not true.

On any given day, the market can be totally wacky for reasons that do not make sense. Sometimes stocks go up when they should have gone down, and sometimes entire sectors move for ridiculous reasons.

"Never assume that just because something happened it has to make sense because the market is always supposed to make sense. That's nonsense," Cramer added.

Businessmen shaking hands
Thomas Barwick | Getty Images
"Remember, nobody ever made a dime panicking."
-Jim Cramer
It is important to be able to look at some of the crazy moves and understand that the stock moves are just nuts. Once investors start cooking up connections that don't exist, they really get in trouble, Cramer warned. Investors can pretty much make themselves believe anything.

The key is to understand the catalysts that make stocks move.

Sometimes, a stock move can have nothing to do with the underlying prospects of the company. When that happens, Cramer recommended taking advantage of that irrationality, not to buy into it by chasing stocks or panicking out of them.

"Remember, nobody ever made a dime panicking," Cramer said. (Tweet This)

For instance, sometimes the market sees a huge pullback and stocks fall even though it has nothing to do with those companies' fundamentals. Struggling hedge funds will start selling to raise money to pay back unhappy clients who are demanding money.

Sometimes there is a red-hot deal, like a Facebook or Alibaba, which is so massive that the mutual funds have to sell stocks in order to raise cash to get in on the deal. It's crazy, but mutual funds don't keep cash on hand to make these kinds of investments. That means they don't have enough cash to participate in these big deals unless they sell stocks they own.

Regular investors will see the selling and start to panic, dumping stocks in turn. Ultimately, this will trigger a sell-off, and the media will try to cook up reasons all over the place to explain why otherwise stable stocks went down.

It can happen to commodities, too. Cramer saw it first hand when oil ran up to $147 a barrel in 2008, even as demand for petroleum was stable to weaker, which should have caused oil to go lower. Only after that insane rally did he find out that oil skyrocketed because a couple of hedge funds had bet against oil, and had to buy in their shorts at insanely high prices. Sure enough, after that huge run, oil fell straight back down to $33 a barrel as hedge funds sold it off to raise cash.

"The worst mistake, the most common mistake you can make these days, is to say that because a particular stock or commodity trades at a given level, it therefore deserves to trade there. Often, that is just fiction now," Cramer said.
So, when everything in the market or in a particular sector goes down, instead of assuming that the issue pertains to the fundamentals of the underlying company, Cramer suggested to ask yourself if it could have been caused by an out of control hedge fund or Wall Street money management. Then realize that the market's irrationality can be your opportunity to profit

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« Reply #1 on: July 06, 2016, 07:57:57 PM »

Brexit can’t stop the market from doing what it wanted to all along

By Kevin Marder
Published: July 5, 2016 2:08 p.m. ET

Getty Images
While the sharpness of the three-day rally has caught some by surprise, the market is simply doing what it had wanted to do all along pre-Brexit: move higher.

The advance has featured gap openings, excellent closes and above-average volume. The latter has approximated the activity during the first three days up off the Feb. 11 bottom.

For a larger chart, please click here.

Chart created using TradeStation. ©TradeStation Technologies, 2001-2016. All rights reserved.

The two things that tainted the February-April rise were subpar volume, which suggested a tentativeness on the part of market participants, and a lack of growth-stock leadership. Trading volume appears to have returned in force, while more growth stocks appear to be readying a run for the roses.

The real leadership, however, is among defensive sectors such as consumer staples, utilities, and telecommunications. This speaks to a certain sense of caution among participants. It is classic leadership late in a bull cycle.

There is precedent for an extended period of defensive-stock leadership. After the Black Monday crash of October 1987, defensive groups like food, beverage, tobacco, household products, and drugs began a period of leadership that lasted through all of 1988 and 1989, and well into 1990.

(Earnings-growth rates were higher back then. Most drug companies were expanding earnings by 16%-20% per annum, and even staid Coca-Cola was booking mid-teens growth. Portfolio managers tasked with a growth mandate had it much easier then.)

Among the names, TAL Education Group XRS, +1.03% was discussed in the last column. "Aggressive speculators might consider the May 25 high of 58.99 ... as a pivot for a cheater entrance ahead of the formal 60.44 base top." Thursday, the stock cleared the top of the base on volume 94% above average, just the type of conviction one would like to see.

XRS is still potentially buyable around Thursday's closing level of 62.06, which would represent about 5% risk when 58.99 is used as a protective stop. Entering a position that is 5% beyond its buy point is considered borderline extended. It could be reduced by one-half by taking a half-sized normal starter position.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. This initial position could be added to if the stock proves itself.

For a larger chart, please click here.

Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.

Supernus Pharmaceuticals SUPN, -0.44% develops specialty treatments for epilepsy and attention-deficit hyperactivity disorder. Unlike many biotech concerns without earnings due to their development-stage status, Wall Street expects Supernus to grow earnings by 121% this year and 132% next.

Revenue growth has been 39% and 53% for the last two quarters, respectively.

Technically, the stock is working on a 10-month O'Neil cup-with-handle base. Thursday, price cleared the handle on volume 70% greater than average. A very aggressive speculator may consider an entrance around Thursday's closing level of 20.37, preferably closer to 20.

SUPN is a somewhat less-liquid issue, with market capitalization of about $1 billion and average daily dollar volume of about $11 million. This heightens its potential volatility and risk.

For a larger chart, please click here.

Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.

Abiomed ABMD, -0.31% a maker of heart-related medical devices, should grow earnings by 33% in 2016 and another 57% in 2017, according to most seers on Wall Street that track the company.

Growth in sales has been steady, up 38% and 39%, respectively, in the two most recent quarters.

The shares enjoy solid accumulation as price puts the finishing touches on a 10-month base. Very aggressive speculators might consider the Aug. 13 high of 110.68 as an entrance pivot for a breakout play (see chart below).

For a larger chart, please click here.

Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.

Zillow Group ZG, -1.35% is the popular provider of online real estate data and operates a network linking homebuyers with sellers. Most analysts forecast 83% earnings growth for this year and 336% for next year.

The stock has outperformed handily over the past three months as it makes its way up the right side of a two-year base. Very aggressive operators might consider using a pullback below 36.00, and preferably below 35.00, as a possible entrance. The chart below shows the relentless climb in the relative strength line, where the rubber meets the road.

For a larger chart, please click here.

Chart created using MarketSmith. ©2016 MarketSmith Incorporated. All rights reserved.

While growth stocks are not the dominant sector they were earlier in the bull market, the number of pattern setups in this area has firmed slightly. Trading volume has been the big improvement post-Brexit. Breadth, while challenged longer-term, is nonetheless bright, with the cumulative New York Stock Exchange advance-decline line in new-high ground ahead of the S&P 500.

Relax and enjoy the view. It could be much worse.

Kevin Marder

For intraday market comments and stock ideas:

Earnings estimate data provided by Thomson Reuters.

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Neither MIAC nor any of its affiliates will be liable, and we accept no liability whatsoever, for any losses any recipient of this report may suffer as a result of his or her or its use of this report or any of its contents