December 9, 2015
Cramer: Sellers just don’t understand the game
With major averages closing in the red on Tuesday, Jim Cramer reminded investors to think of the stock market like a card game and play the hand they have been dealt. As bad as it is out there, you cannot throw it back and give up. The trick is to look at the cards and figure out how to make something work.
The problem right now is that Cramer sees two different groups of investors playing their cards. The first group has resigned itself that the Fed will be raising rates. This group just took their cards and threw them back with the reasoning that if the Fed is going to tighten and the global economy weakens—then it is time to get rid of everything.
Cramer hates this type of thinking, but he sees it all the time. This negative perspective is rarely right.
The other card players are the ones that recognize they have a not-so-hot diversified hand. They think about the stocks they can throw back into the pile, and look for better ones. This group will tend to toss out industrials, oils and anything connected to machinery.
The key is that this group does not leave the table. They use the weakness caused by investors selling everything in order to pick up high-quality stocks. What are the high-quality stocks to look for in a slowdown?
“How about the companies that can outrun a slowdown, especially one that is exacerbated by the Fed tightening when it is obvious that, despite the strong employment numbers, things are looking real bad in many other areas of the economy,” Cramer said.
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One group that emerged as a winner was biotech, with both Biogen (NASDAQ: BIIB) and Celgene (NASDAQ: CELG) rallying on Tuesday morning. Netflix and Amazon also rebounded, along with a few of the high growth semiconductors.
However, Cramer warned that there are more bad cards in the deck right now than good ones. If the Fed will indeed tighten, then that means there won’t be a recovery in housing stocks. If the airlines go back into price war mode, then there won’t be money going into that group, either, and that means investors should not buy more Boeing (NYSE: BA).
Industrials will have estimates cut, and if Anglo American (London Stock Exchange: AAL-GB) is laying off 85,000 workers then they won’t need more Caterpillar (NYSE: CAT) machines.
“Not for one minute am I saying that the entire market can rally off of slow economic growth,” Cramer said. (Tweet This)
But there are still a limited group of high cards that are worth picking up, even if they were the stocks sold by investors who just don’t understand the game.
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