Connect with us

Stocks

Cramer’s charts reveal that euphoria caused the stock market meltdown

Published

on


While CNBC’s Jim Cramer is content to blame the market’s recent sell-off on high-risk products that traders used to bet against volatility, he knows there could be more to the story.

That’s why the “Mad Money” host recruited technician Carley Garner, the co-founder of DeCarley Trading and the author of Higher Probability Commodity Trading, to get to the bottom of the drastic correction.

“In Garner’s view, there’s a whole lot of blame to go around. It’s not just the fault of foolish speculators who made big, leveraged bets that the market would stay calm, then were forced to sell common stocks and stock futures to meet their brokers’ margin calls,” Cramer said on Tuesday.

“Garner thinks the market was already broken in early January. She believes the bulls were victims of their own complacency.”

Cramer first called attention to the daily chart of the CME Group’s E-mini S&P 500 futures, which trade 23 hours a day, to get a more detailed view of what happened.

Garner noticed that the indicator climbed from the 2,400s in September to the 2,800s in January practically in a straight line, without much consolidation. That trajectory alone told her that the S&P 500 was just as broken at January’s peak as it was at February’s bottom.

“Her reasoning is pretty simple,” Cramer said. “Asset prices aren’t supposed to move straight up or straight down unless you have a sudden and dramatic change in the fundamentals — and yes, the big tax cuts certainly count as a big change, but even with tax reform, this was an extreme move.”

But the market is rarely rational, especially during bull markets. Garner said investors’ emotions also played a big role in the decline: exuberance pushed stocks higher into January, then gave way to panic as the market started to break down.

Garner even made the case that the S&P 500 never should have traded above the 2,730 mark that it reached in early January.

“In fact, the moment we broke through that level, it pretty much broke [almost] all the rules of technical analysis,” Cramer noted.

As the S&P 500 approached and crossed that mark, the Relative Strength Index, a key indicator that signals when stocks are overbought or oversold, was screaming that the index had gotten extremely overbought.

To Garner, “these readings were classic signs of a broken market on the upside, yet people who were making money in stocks didn’t want to admit that anything was wrong, at least not until the pendulum started swinging the other way,” Cramer said.

That’s why Garner argued that the market’s decline was technically justified — the S&P 500 fell to its floor of support, the long-term trend line, and bottomed before resuming its march higher.

The only reason it seemed so dramatic, Garner said, was because stocks had run up so much before the plunge.

Now, the S&P 500 and its Relative Strength Index have returned to normalcy. To Garner’s satisfaction, the bears were ostensibly shaken out — albeit messily — and the bulls’ euphoria was tempered.

The technician also accepted Cramer’s argument about risky volatility betting being a part of the decline.

“Betting against volatility is really just an extreme type of irrational exuberance because the VIX goes up when the market goes down,” Cramer said, relaying Garner’s point.

But for Garner, “these VIX traders are the symptom, not the disease,” he said. “The actual ailment is euphoria, which is why so many funds were foolish enough to make such a risky bet in the first place.”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Stocks

Charts reveal buying opportunities in some Chinese stocks

Published

on

By


The stocks of a few top-notch Chinese companies may have already bottomed as a result of the U.S.-China trade dispute and could soon be buying opportunities for investors, a top chartist tells CNBC’s Jim Cramer.

Cramer, who has been steering investors away from Chinese stocks for the better part of the dispute, said he wouldn’t blame anyone for thinking Chinese investments were too risky, especially after China announced that its economy grew at the slowest pace in nearly three decades last year.

But when he checked in with technician Dan Fitzpatrick, the founder and president of StockMarketMentor.com and Cramer’s colleague at RealMoney.com, he started to see things a little differently.

“Fitzpatrick has a really interesting thesis: He thinks the current weakness is already priced into many of the largest, highest-profile Chinese stocks,” Cramer said on Tuesday. “Looking at the charts, he believes they’ve already bottomed [and] they’re not going to take that bottom out, which means dips, like the one we had today, … should be treated as buying opportunities.”

Cramer, host of “Mad Money,” explained this phenomenon: because the stock market is “a forecasting machine,” it tries to predict what could happen six to nine months from now. So, when China released its latest economic data, it should’ve already been baked into most stock prices.

“The market will almost always peak before the economy peaks,” Cramer said. “It will almost always bottom before the economy bottoms, and that’s what Fitzpatrick’s predicting with some of the better Chinese stocks.”

First, Fitzpatrick analyzed the daily stock chart of JD.com, a Chinese e-commerce company. His take? The stock just made a “totally buyable double bottom” pattern at $20 a share, and, so far, has held above that level, Cramer said.

Fitzpatrick also noted that JD.com’s stock managed to hold above its 50-day moving average after trading above it earlier in January, which signaled to him that JD.com could be ready to rally higher.

But the most important signal is coming from the stock’s moving average convergence-divergence indicator, or MACD, which detects changes in a stock’s path before they happen. That indicator has been soaring since September, which, coupled with the stock’s relative inaction, is usually a signal that a stock has “a lot more upside,” Cramer said.

“Still, Fitzpatrick says that the stock is kind of caught in the middle of no man’s land” between its $21 floor and its $24 ceiling, where it peaked earlier this month, Cramer said. “If the stock pulls back any lower, it could stay stuck down there for a while.”

However, if the stock can break through the $24 level, and Fitzpatrick believes it can, then it could climb as high as $29, the “Mad Money” host continued. Fitzpatrick would buy in as soon as it passes the key $24 threshold.

Also on the table for Fitzpatrick was the stock of YY, a Chinese entertainment streaming platform-meets-social network. Like JD.com, its stock formed a double bottom pattern and climbed above its 50-day moving average in recent months.

“Right now, YY’s trading at $68 and change. Fitzpatrick likes it as long as it holds above the 50-day moving average” of $65, Cramer said. “Now, the stock has a ceiling at about $70, but if it can break out above that, Fitzpatrick thinks it’s smooth sailing to $85.”

All in all, while Cramer has been wary of Chinese plays, it’s always worth examining “the other side of the trade,” he told investors.

“After today’s brutal, in-part-China-driven sell-off around the world, it’s worth considering whether some of these Chinese stocks may be in better shape than you’d expect,” the “Mad Money” host said. “The charts, as interpreted by Dan Fitzpatrick, suggest that the best-of-breed China internet [stocks] like YY and JD.com may have already bottomed, although Fitz says you should wait for more of a breakout before you start buying either stock.”

“I don’t know if he’s right, and I don’t recommend buying any Chinese stocks because of the trade turmoil,” Cramer continued. “But when just about everyone’s negative on a particular group, it’s always worth giving the other side of the trade some serious consideration.”



Source link

Continue Reading

Stocks

Charts suggest lower volatility, higher stock prices ahead

Published

on

By


The market’s fear gauge is signaling that stocks will see less volatility and higher prices in the next few months, CNBC’s Jim Cramer said Tuesday after consulting with a top volatility chartist.

The fear gauge, also known as the CBOE Volatility Index or the VIX, tracks S&P 500 option prices to measure near-term expectations of volatility, or the chances that the stock market will endure dramatic swings in the near future. When the VIX rises, it tends to mean investors are growing concerned about the market and making bets to protect themselves.

But the VIX has been trading lower since it peaked in December amid a marketwide sell-off, suggesting that fears about the market are subsiding. To make sense of the action after the late-2018 fallout, Cramer asked technician Mark Sebastian, founder of OptionPit.com and resident “Mad Money” VIX expert, for his input.

Sebastian, who also works with Cramer at RealMoney.com, said that while the nature of the VIX has changed, it’s still helpful in predicting what’s next for the market. And, right now, it’s quite positive, he told the “Mad Money” host.

“Sebastian thinks it signals that this earnings season may be a bit of snoozer, with a bullish bias, as the market gradually pushes higher over the next few months,” Cramer said. “The Volatility Index may not be working exactly like it used to, [but that] doesn’t mean it’s useless, and based on the current action here, he thinks the stock market has more room to run.”

To reach this conclusion, Sebastian reviewed how the VIX acted over the course of 2018. Plotting it against the S&P 500, he noted that during the market’s breakdown in February and March, the VIX acted normally: surging when the S&P plunged, and making a lower high when the S&P dropped again, which signaled that the market had bottomed.

But in November, the VIX barely budged when the S&P got crushed, Sebastian said. Normally, that means that stocks are bottoming, but in December, the S&P collapsed again. The VIX only lifted in late December, after the S&P had fallen several hundred points, and didn’t even reach its January peak despite the fact that the entire market was selling off.

“Sebastian says the fourth-quarter decline was different from anything else we’ve seen in the last decade. Since 2008, when the stock market experienced a major sell-off, that’s always been accompanied by a huge spike in the VIX,” Cramer explained. “If you were only looking at the fear gauge, it seemed to be saying that the garden-variety sell-off at the beginning of last year was worse than the total meltdown at the end of last year.”

And, according to Sebastian’s analysis, the trading instruments that Cramer railed against in February — the ones that profit when the VIX does down — were behind the unusual action.

Specifically, securities like the VelocityShares Daily Inverse VIX Short-Term exchange-traded note, or the XIV, which imploded while the VIX stayed calm, “[represent] a sea change in how volatility is going to work going forward,” Cramer said.

“The crazy price action from a year ago left a bad taste in traders’ mouths,” he explained, adding that fewer money managers are likely to hedge their positions using VIX options after seeing 2018’s swings.

“In this new environment, hedge funds will no longer be racing to cover their short positions, which means that the VIX is probably going to signal that there’s less volatility going forward,” Cramer continued.

But that doesn’t mean that the VIX has become a less useful measure, Sebastian argued. The VIX’s tepid action in late December and early January was likely a precursor to the higher prices stocks are currently enjoying, he suggested.

So, as more money managers steer clear of risky VIX trading products and more still unwind their hedges, the fear gauge’s recent breather is signaling a peaceful few months ahead for stocks, Sebastian said.

Cramer’s take? “Even though I’m a little flummoxed that the VIX really didn’t work, I agree with Sebastian. I think we go higher.”

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer’s world? Hit him up!
Mad Money TwitterJim Cramer TwitterFacebookInstagram

Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com



Source link

Continue Reading

Stocks

Medtronic CEO pushes back on criticisms it has a ‘spotty record’

Published

on

By


Medtronic CEO Omar Ishrak pushed back Tuesday on a Barclays research note that said the U.S. medical device maker took a “step back” following disappointing comments on the company’s outlook from Ishrak at the 2019 J.P. Morgan Healthcare Conference.

The medical device maker has “the strongest pipeline that we’ve ever had in this company,” Ishrak told CNBC’s Jim Cramer from the 37th Annual J.P. Morgan Healthcare Conference in San Francisco, California. “We innovate, we create new markets and we disrupt our own market,” he added. “We think these are game changers for health care.”

Shares of Medtronic sold off Monday, closing down 6.5 percent to $82.45 each after Ishrak said during an investor presentation that the company could expect sales to be at the mid-point of its full-year range of 5 percent to 5.5 percent. The company is experiencing softness in its top-selling cardiac and vascular unit, which makes defibrillators, pace-makers, heart valves, and stents.

Barclays analyst Kristen Stewart late Monday cut her price target on the stock to $104 from $113 and reiterated her overweight rating. In a note to clients, Stewart said she wasn’t surprised by the sharp stock reaction and characterized Ishrak’s comments as “cautious.”

“If it isn’t one thing, it seems to be another when it comes to Medtronic,” Stewart said. “Medtronic has had a somewhat spotty record when it comes to providing guidance and has been affected by a series of one-off events over the past year and a half.”

Ishrak said the note did not accurately reflect his comments.

Medtronic’s stock is down about 4 percent over the past 12 months and down 9 percent year to date.

Wall Street analysts have had some concerns regarding questions of the safety of paclitaxel, the drug used in commercially available drug-coated devices, which Medtronic make. Medtronic has said they are working with the U.S. Food and Drug Administration on that.

Additionally, Medtronic, along with the rest of the medical device industry, could face new regulations from the FDA, which seeks to change how the device manufacturers bring their products to the market.

Advanced Medical Technology Association, or AdvaMed, the industry’s lobbying group, has pushed back against the agency.

Despite weakness in the cardiac and vascular unit, Ishrak told CNBC the company is focusing on introducing technologies such as Micra, a new kind of pacemaker that is implanted directly into a patient’s heart and is less invasive than current methods.

Ishrak also touted the company’s $1.64 billion acquisition of Israel-based Mazor Robotics, a maker of guidance systems for spine and brain surgeries.



Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme. Theme by MVP Themes, powered by WordPress.