Making Sense Of The Selloff – Cramer's Mad Money (6/13/17)
Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, June 13.
What looked like a rotation from the tech stocks into stable names has suddenly ended. As the market reached record highs, Cramer tried making sense of the selloff. Usually tech selloffs are triggered by shortfalls in earnings. The investors sell their stocks and analysts downgrade big names in the group. However, this time it was different as the trigger was not due to a shortfall in earnings but due to a large fund selling. “So there was no reason for the analysts to follow up yesterday with more downgrades. Because there was no actual shortfall. There was no tech massacre,” said Cramer.
Even despite this, there were no analyst revisions. As a result, there are scattered gains everywhere. Bank stocks and financials are up in expectation of a rate hike and some industrial stocks are up due to strong earnings. “Before we tell ourselves that the tech selloff’s over and we can go back to buying, we need to address a two-part conundrum in this rally. First, the tech comeback is anemic. There are plenty of techs that are still well below where they were on Thursday. If there really isn’t more to the selloff, then they should be higher,” said Cramer.
“Second, the other rallies similarly lacked punch. It was a grade-B, end-of-rotation action, not something seething, a strong comeback that gives us a real launching pad to higher prices,” he added. All this could lead to three scenarios:
- The Fed could surprise the markets and there will be rotation back into tech to their pre-selloff levels.
- The Fed can hint towards another rate hike and the banks will rally.
- The market will get hit on account of the Fed meeting and investors will have to figure out what works.
“The bottom line? Today felt more like the end of a rotation, not the beginning of a new one, and without a fresh catalyst I can’t see us lifting off from here, unless Fed chief Janet Yellen manages to say things are terrific, we need to raise rates, and then she turns out to be genuinely sanguine that the future is brighter than the past,” concluded Cramer.
Off the charts
Cramer went to the charts with the help of technician Tim Collins to review Emerson Electric (NYSE:EMR) as it has started showing some life.
The stock has traded sideways for four months. The breakout in April failed as it was on light volume. The upper Bollinger band has been going higher along with rise in volume which shows that the up move is legit. “According to Collins, if the stock can get back above $61 and stay there for a few days, the breakout will become real, and this current ceiling of resistance will turn into Emerson’s new floor, a floor of support,” said Cramer.
The full stochastic oscillator showed that the stock was overbought in April but the case is different now. “Put it all together, and Collins believes that Emerson could be ready for a quick move up to $63,” added Cramer. Its weekly charts show that the consolidation is a part of the larger climb. He expects the stock to continue its climb over the next 18 months and reach $70 in next six to eight months.
If the stock takes a hit and goes below $55, the bulls will pull their positions and the up move will not happen. “Here’s the bottom line: if you believe in this worldwide economic growth story that I’ve been talking about and you’re looking for an industrial with some upside here that really hasn’t moved that much. My view? Hey, look, you could do a lot worse than Emerson, and management’s paying you this nice 3.15% yield just to wait for something good to happen,” concluded Cramer.
CSX Corp (NYSE:CSX)
Railroad operator CSX has seen its stock move up from $25-53 in 12 months with a more than 50% move YTD. Most of these gains came after former CEO Michael Ward stepped down and the veteran Hunter Harrison took his place.
“If you ever believed that executives didn’t matter, that a CEO was just another semi-replacement cog in a larger machine, this action in CSX is proof positive that the stock market disagrees with you,” said Cramer.
Since becoming CEO, Harrison has made significant changes. He introduced precision schedule railroading which means running of fewer smaller trains on tight schedules with cost controls. That has led to massive improvements in velocity, on-time arrivals and earnings.
“The market’s acting like Hunter Harrison can work miracles at CSX, and honestly, he’s already done a very impressive job. However, this stock has already run up so much that I think if you want to buy shares in CSX, you need to wait for a better entry point if you already don’t own it. I hate to chase, so be patient; sooner or later we’ll get a market-wide pullback again and then you can pounce on this reinvented railroad,” said Cramer.
Their $1B buyback program and dividend boost shows the company has confidence in their performance.
Teekay Corp (NYSE:TK)
Low dollar stocks are tempting for uninformed investors but Cramer said one should be fully aware of the risks. Take the case of Teekay Shipping, a shipping play on marine energy transportation which trades at $6.
Teekay’s stock price moves in relation to the oil price and hence it has lost 90% of its value since the oil glut in 2014. Cramer dug deeper to see if the company has issues after Morgan Stanley downgraded the stock.
“With oil stuck in the $40s, this stock just keeps languishing in the single digits. And we know why: the cost of production here in the United States has gotten so low that our domestic companies can flood the market with supply whenever oil goes above $50 a barrel,” said Cramer. The note from Morgan Stanley suggested a reverse merger and Cramer thinks investors should take this seriously.
“Even if the situation is less dire than Morgan Stanley suggests, the fact is that this whole space has become kind of radioactive. I know you’re drawn to it. I don’t want that. Teekay’s got plenty of troubles beyond the liquidity issue. I’m not saying the bears will absolutely be right. I am saying that there are much safer places to speculate with your money,” said Cramer.
The company’s CEO resigning in January and the chairman due to follow soon are signs that things are not great with them.
Viewer calls taken by Cramer
Under Armour (NYSE:UA): If it gets to $20-21, buy it.
Walgreens Boots Alliance (NASDAQ:WBA): Cramer’s trust owns Walgreens. Whether the merger goes through or not, there is a win for Walgreens.
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