Brace yourself for some profit taking

Current conditions are a perfect recipe for ringing the register. The hottest stocks, in particular, could see some real mayhem ahead.

By Jim Cramer May 23, 2013 9:07AM

thestreet logoWhen you see almost any market down 7%, it's pretty shocking -- except, perhaps, in the case of Japan. For the Japanese market, which has been walked higher for months, a 7% decline may not be all that much. This was a market that had been up about 50% year to date, so you are talking about a correction that still takes it down only to a 39% gain for 2013. An artificial market with a real correction should not play havoc with the rest of the world. But when it's in conjunction with still one more disappointing -- not horrendous, but disappointing -- manufacturing number from China, the heated U.S. market can't shake it off.

 

It's funny -- if the Federal Reserve minutes hadn't been so questioning of Ben Bernanke's bond-buying program, we might actually have had a situation that could have been shrugged off with a 4% correction -- 1.5% from top to bottom Wednesday and then 2.5% if we are lockstep with Europe Thursday. Instead, though, that dreaded fear of Fed tapering is occurring as Europe remains in a recession and as China seems to be headed into a relatively severe slowdown. As a result, this may mean that a 5%-to-7% correction over several days makes more sense.


Hey, if Japan can have it in one day, we could have it in three.


Normally, I would be more sanguine and say, "OK, Japan and Europe and China have nothing to do with the housing and auto recovery in the U.S." But I am cognizant that there's a lot of hot and relatively unsophisticated money that has come in the U.S. market, lulled by the 19-straight-up-Tuesdays-no-real-correction phenomenon. That makes it more difficult to figure out whether it's worth selling down 2% or buying down 2% if the market is going to go down more anyway.

 

True dividend-yield support after this run is not near enough, as we saw from the horrendous selloffs in utilities and real estate investment trusts over the last few days.


Stock market report (© ULTRA.F/Digital Vision/Getty Images)When you layer on that we are about to embark on a three-day weekend -- when people who have ample profits are willing to sacrifice some of them to save the rest of them -- the situation isn't optimal.

 

My friend Herb Greenberg asked a very good question in Twitter this morning: Do I think the ample cash on the sidelines will now use this correction to come in and buy?

 

My thinking is "no." Here's why. If these same people didn't like it when the market was up 9% or 11% or 13% or 15%, why would they like it at any of those percentages on the way down? In fact, they will like it less, because the only thing that kept them from abandoning the market altogether was the possibility of falling too far behind the averages. That -- plus what I believe will be a wall of chattering fear, erected faster than the Russians built the Berlin Wall -- will make it very difficult for sidelined money to get on the playing field.

All in all, it's a recipe for ringing the register in a moment of stabilization as people wait for still lower prices before they make any move to get in. Don't forget the zeal of the chartists, who have now become your enemy if you are long. They have never seen so many stocks trading above their 50- and 200-day moving averages, and they will hound that point until the cows come home. They are a reinvigorated enemy of the bull case.

 

When you combine that with the unsophisticated speculators who have just entered the market, it can all cause real mayhem in the hottest stocks out there -- stocks that have taken their cue from the Fed, and not just the Fed-inspired fundamentals.

 

cramer

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.

 

 

 

More from TheStreet.com

196Comments
avatar

Jim a couple days ago it was, "You are dumb if you're not in the market, jump in." Today, it's terms like "Brace yourself" and "Real mayhem ahead."

You make the case for this market, it's volatile on an almost daily basis.

May 23, 2013 10:41AM
avatar
Jimmy, if all the fundamentals are so darn good, why are the Global Feds Printing like Crazy. It's funny how you change your TUNE, once you see the Markets might change their TUNE. This is Casino Capitalism, at it's worst.
May 23, 2013 10:03AM
avatar
Billionaires cash in and make some Millions in PROFITS. The suckers pay out today. 
May 23, 2013 10:56AM
avatar
When Ben turns off the faucet watch out below baby!
May 23, 2013 10:49AM
avatar
Jim, Didn't you tell everybody to buy, buy, buy a couple of days ago? I think those "unsophisticated speculators" are the folks that heeded that message.
May 23, 2013 9:35AM
avatar
I went back and ran some numbers and you can make a pretty good argument that technical support levels for stocks are 25% below where we are now - this is really scary.   Another article about futures stated that the S&P is in danger of their first back-to-back losing sessions in a month!  I keep running into 1270 on the S&P, which is a long way down from here.

This last run-up for the last few months just doesn't have much volume behind it or much of a foundation underneath it.  In a healthy bull run, we get a run up, followed by consistent pull-backs to some semblance of a support level - 5 steps forward, 4 steps back.  Gains made are built on solid breadth and volume.  A pyramid is a very solid structure, and the more our markets look like that, the better.  As it stands now, they resemble more of a tall, thin structure, like a 10x10 building that is 50 stories tall.

Late last week, I predicted 1.276 on the Euro.  We came close, but then headed the other way, and the stop-loss triggers kicked in.  Still a nice ride down down from 1.315, but back to the drawing board.

May 23, 2013 9:31AM
avatar
The dividends will not be enough to support this market because they were really only there to offset inflation and a form of appeasement anyway.  The political turmoil we will see now will be conclusive.  These increases were really all D.C . had to fall back on to keep folks temporarily off their backs. They have been looking at this run-up as their one and only saving grace.  These  profits should have never been viewed as anything but an offset to inflation.  And with so few fundamentals to fall back on the drop could be very very scary and very fast as well.  And as I have said for some time, the weak hands that were forced into these markets because of a lack of a better alternative will soon show their lack of courage and discipline.   Oh well the power of the collapse will be similar to being a spectator at a 4th of July fireworks display. The oohs and awes.  Japan fell 7% overnight.  And they were FOLLOWING us down the path.
May 23, 2013 10:57AM
avatar
Thanks to the Fed giving free money to the banks with zero interest rates we will see an other buble. It is a mater of time!!! Is it now???
May 23, 2013 1:18PM
avatar
Jim should run for office. He's an excellent flip-flopper!
May 23, 2013 12:34PM
avatar
We are rapidly closing in on some all time increases that should spell trouble for any sane person who is engaged in these markets.  These constant percentage increases MUST at some point signal a serious problem.  The only fundamental anyone is minding I suspect is the number at the bottom of their account.  Seriously people, this is a recipe for not just disaster but economic annihilation.  This is pure and simply a massive unpredictable assumption of risk. .  And yes we are condoning and sharing in its development. If you think you can just sell and get out let me tell you a story of how you can be trapped.  About 15 years ago a hedge fund friend told me about a hot stock he had been trading called AREM.  When this stock was at about $18 it was one day halted by the board as being suspicious.  The issue was researched and was found to be an off shore based company and all their profits were concocted. After a three week delay it was reopened at like $.89.  Everyone who was long lost $17.11 per share and zero opportunity to sell at any other amount. You see if things get really crazy and trading is halted for a period of time and then reopened there is no guaranty the last sale price will be the opening price and you will lose everything.  This is all legal and possible.  And never forget we are dealing with folks who really don't care what is right or wrong, they just want your money..
May 23, 2013 10:39AM
avatar

House Resolution 807 “A bill to require that the Government prioritize all obligations on the debt held by the public in the event that the debt limit is reached.”

 

Duh, we pay those idiots to legalize common sense? How about stop funding Christian Crusades?

 

May 23, 2013 1:04PM
avatar
Two days ago he was saying buy because the market is going up. He must have sold what he wanted to.
May 23, 2013 11:30AM
avatar
Why would anyone listen to this guy?
May 23, 2013 11:22AM
avatar

Fatty you stick with your predictions, I'll stick with mine...

 

BTW....It's between 7 and 10 a.m. every morning....Here smell this.

 

yukety,yuk...swabby.

May 23, 2013 10:15AM
avatar
Bernie Baby is just saying those things to look responsible. He will not stop the stimulus. Come on in the water is fine.
May 23, 2013 10:25AM
avatar
Jim, Your missing the big picture.  The stock market started to drop on Monday at 12:00 as soon as foreign news sources reported that congress had eliminated the debit ceiling.  I have seen no US source reporting this action, but apparently a lot of the foreign money which has been inflating both the stock and bond markets went back home since the prospect of making profits on currency arbitrage disappeared. Apparently congress issued $300 B in new debit Monday on top of the $17.3 T ceiling. I had previously noted that this rally would continue based on the influx of foreign capital until someone did something stupid. Congress evidently took matters into their own hands.
May 23, 2013 11:44AM
avatar
Short the summer market (QQQ puts if you are conservative QID calls if you are aggressive) and buy back around October .......the billions of dollars that companies are holding are finally being put back to work ......projects that have been dormant for years are now being funded ....check out the job boards for project manager and program manager vacancies ...through the roof the last 3 - 6 months ......the insiders are selling now knowing that they will be able to buy back at reduced prices later this year .....

Remember you heard it here first ......... 

....cue the one eared mutt .......
May 23, 2013 1:27PM
avatar
Thanks for the late warning, Jim, as usual. I will remember that the next time you are pushing your favorite stocks until the bitter end right before a correction and pushing the wrong ones at that. I saw you last night on "am I diversified?" and you never said a word about what could happen when the Fed minutes were released. You and Mirhaydari can swap spit tonight over how smart you were to short the market but not tell any of your viewers. 
May 23, 2013 10:39AM
avatar

Bullshidt...Japan spooked itself....With a little help from our FED...

I've been Charting Japan along with others for years...

You don't have to run any fkn numbers, if you have been following what has been going on in Japan over the last couple of months, changes in the Political climate and Leadership, along with Greenspan type Stimulus....They were setting themselves up for what is happening.

And a little bullshidt out of China and here we are Today or the last couple of days..

 

We have been running on the "back of a bull" for about 4-6 weeks now...A typical cycle.

Therefore using the FED for an excuse and the "willy-nilly" bullshidt out of Asia and then Europe;

We have "manipulation and profiteering" at it's best...With trends still inplace.

Looking at the "recovery" after the scare this A.M....I'm right, you are wrong.

May 23, 2013 12:51PM
avatar
Go ahead and listen to this snake oil salesman and come back when you go broke. Wont be long
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
268
268 rated 2
422
422 rated 3
632
632 rated 4
512
512 rated 5
518
518 rated 6
682
682 rated 7
523
523 rated 8
343
343 rated 9
124
124 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.