Cramer's Three Reasons Why this Market Will Continue Higher
If you’re a believer in the 2013 bull, you have to love what CNBC’s Jim Cramer said Monday about the markets. Specifically, he mentioned three trends that make him excited about the longevity of the bull market.
Good News Isn’t Punished
If you trade earnings, you know the pattern. If a stock sees a significant move to the upside prior to earnings, all of the experts slap it with the label, “priced to perfection.” If the report is bad, the stock sells off and if it’s good, the same thing happens due to profit-taking.
That isn’t happening in this market. Good news is met with more buy orders. Looking for an example? look at Whole Foods (NASDAQ: WFM).
Bad News is Good News
For a market that is up double digits in 2013, the bar is set high. You might believe that even at these levels, stocks are fairly priced but it’s hard to deny that after such a strong run to the upside, traders are looking for new entry points.
Earnings are good but not great but that isn’t spooking the longs. An inline report in this market should be reason to “sell in May” but that isn’t happening.
No Gap Filling
Even if you’re not much for technical analysis, this pattern is easy to spot. Let’s say that a stock closes at $35, the company reports blowout earnings, and the next morning, the stock opens at $43. Looking at a candlestick chart, you’ll see a gap.
Technicians know that normally, when a stock creates one of those gaps, it will soon retreat to fill the gap it created. Traders know not to trust the initial move higher but in the current market, Cramer noted that gap filling isn’t happening. Instead, stocks are gapping up and continuing the climb.
Cramer said, "Right now we have a bull that's crushing even the most skilled of matadors. We old timers have always been taught not to chase. We have learned that you will always get your chance. That may not be the case this time around."
How to Trade it
If he’s right, and the market is heading higher, you know what to do but what’s more important than capitalizing by opening new positions is protecting your current gains. Reduce short and medium-positions by half and redeploy in other names. There are still plenty of value stocks for the taking.
Disclosure: At the time of this writing, Tim Parker had no position in any of the securities listed.
Latest Ratings for WFM
|Jun 2016||Northcoast Research||Downgrades||Neutral||Sell|
|Jun 2016||Credit Suisse||Upgrades||Neutral||Outperform|
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