I recently wrote about James Cramer, the host of CNBC’s “Mad Money” talk show. Jimbo is the ex-hedge fund manager who rants and raves about the market five nights a week to those willing to listen. And apparently folks are doing just that, as Jim’s influence on many individual stocks puts the old E.F. Hutton commercial to shame. On any given show, Jimbo’s seal of approval or contempt for a stock will have a measurable short term price impact, generally in the form of a substantial price gap. Even more incredible is that we’re not just talking thinly traded, Small or Mid Caps either. When a person starts moving household names with market caps of $35, $50, or even $150 billion, like Cramer routinely does, it’s quite obviously people are doing a whole lot more than just listening. ‘Booyah, Jimbo!’
Personally speaking, it’s all become rather scary to think how powerful his words have become. I typically listen in to the show while doing research, as sometimes the show can be a source of a fresh idea. If it turns out there’s nothing being torpedoed or embraced like the second coming of Jesus Christ, I’ll turn down the volume and get back to focusing on the work at hand. I personally believe in approaching the market based on doing my own homework. By combining the technical and fundamental picture into something that I can appreciate on a risk to reward basis, I feel that if applied consistently, there’s a trade or investment worth pursuing.
Amazingly though, my occasional note-taking as it relates to potential trades based on his ideas is that of the minority. It’s become more and more obvious as of late that plenty of folks have decided that Cramer is the final word and no homework of their own is needed. Whatever the flavor du jour on that evening’s show is, you can rest assured that his audience is more than happy to drink the Kool Aid being served. While it’s not quite like that at Mad Money just yet (and most of the disciples are still seemingly happy to chug down the happy juice), there are definite bouts of stomach churn for those that take in too much of what he’s serving.
If you listen to Reverend Jim and hear something like, “YOU MUST ABSOLUTELY OWN THIS STOCK!” or gospel themes such as, “BROADBAND REVOLUTION!” or “SECURITY STOCKS!” are unabashedly expounded upon like tomorrow is already too late to own the flavor of the moment, then you’ll have heard the market zealot at his over-emotional best. Now, while he might really be onto something when he starts foaming at the mouth and pounding the table, it’s also probably best to not get too worked up about missing the trade opportunity of your lifetime, if you don’t enter in the next twenty-four hours.
I’ll admit it—he’s a danged good interpreter of theme trading ideas and of individual stocks, and that’s why I do listen in most days. Admittedly, the short term results are often impressive; as the stock or group of stocks in question do invariably gap in the direction of his market call. But, if you get past the hype, nine out of ten times (I’m using a guesstimate on this folks) you’re better off taking notes on the ones that make sense to you and then wait for a better entry after the Cramer effect has worn off. Everybody probably knows what a PB & J is. It’s a Peanut Butter & Jelly Sandwich. My advice, when you hear something on his show that you just have to gobble up right then and there, is to give a few days. Remind yourself that those same three letters that represent the tasty treat might also be a well-served acronym for “Pull Back Jim.” It’s great to gain insight from the show, don’t get me wrong. However, it’s even better when you can apply your own money management and wait for the very, high-probability pullback.
Ultimately, the nine out of ten (the guesstimate) that do just that, gives you more than a fighting chance to appreciate his advice long after Jimbo has gone on to his next hot idea.
Some of you out there will scoff at my conservative approach. If you’re lightening quick at trading the after hours market and there also happens to be stock available in the name plugged that evening, then my hat goes off to you, as you probably have a very sweet position for the very short term. However, for the rest of us (and probably the majority), the reality is that most of these issues gap up or down on very little volume and set the stage for the impending price gap the next morning. Unless your modus operandi is daytrading, when you see the fore mentioned signs emanating from Jimbo’s high alter, you’ll most likely be doing so at a substantial premium that typically wears off after the fist pounding and blood curling tirade to own a particular stock has subsided.
In some instances, you’ll invariably miss out altogether by taking my approach. Most recently Jimbo went nutty over the SECURITY STOCK theme and the need for every man, woman, and child to own this sector. One small capper mentioned, actually more like plugged incessantly, was Global E-Point (GEPT). The stock immediately went from a closing price of $4 a share to $6 in less than fifteen minutes in after-hours trading. GEPT went on the next day, in Friday’s trade, to open up at $6.30 and close at nearly $7 a share. This might be construed as one of those times where I secretly kick myself for being so methodical and not playing the momentum daytrading game. To be quite honest though, if I had bought GEPT in the after hours malaise and it happened to turn .15 cents or so against me, I’d probably have dumped it for the small loss while thinking, “What was I thinking, is this 1999 again?” I certainly hope not.
Fortunately, whenever I do get a bit antsy I’m quickly reminded of what does work for me; namely, being centered on the daily chart from a swing perspective. This allows me the luxury of being comfortable in waiting for a trade to set up according to my rules, and not some hot market call that does nothing to reinforce consistent trading habits. It also doesn’t hurt that I’m reminded of other ‘quick picks’ from Cramer’s theme of the moment, that have given more than one shot at entry off pullbacks, or perhaps just kept someone like me, out of trouble altogether. Some of those names, which might be more recognizable to folks include: Cisco (CSCO), Intel (INTC), Broadcom (BRCM), Millennium Pharma (MLNM) and Infosys (INFY). While only INFY has suffered a real nip in the bud, subsequent to Jimbo’s fist pounding, INDIAN TECH SERVICES theme, his BROADBAND REVOLUTION picks have also failed to measure up with the Jones’ as of late. With the exception of BRCM (which traders would had to have held for a 5% drawdown and nearly two weeks before it became profitable again), you would have been better off waiting for your own personal REVOLUTION OF COMMON SENSE.
Speaking personally, the last two weeks have not been my best performance, so I’m not knocking the ones that haven’t panned out for Jimbo during the latest phase of the bull (btw, kudos to his Genetech (DNA) ‘best of breed’ call). We all win some, lose some and hopefully manage it well enough to come out ahead consistently. I’m just saying that come Monday, if his latest rave, such as the theme to GO COLOMBIAN with Bancolombia (CIB), were to continue higher (off the Cramer Insanity Buying) that I wouldn’t be upset or feel I needed to change my plan. With its All-Time-Highs of 20.75 set back in 1996 virtually around the corner, a lot of folks are probably seeing blue skies ahead. Personally, I can’t help but get a little altitude sickness, especially in light of the geographic region. But, maybe it’s also because my own hard work found the stock originally back when it was breaking out at $5.35 and was deserved of IRA money at the time. Even more recently, there have also been quality technical plays thru $16.25 and $17 for the IBD crowd, of which they were definite participants. But, if you want to play the home game with Cramer and buy a stock that’s already gone up more than 300% this year alone on a third price gap caused by real Mad Money, then you can be my guest. Personally, I’d like to have you over for some dinner…‘Olé Jimbo!!’
Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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