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The 'Spillover' Effect: Cramer Eyes Relationship Between Oil, Stocks

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The 'Spillover' Effect: Cramer Eyes Relationship Between Oil, Stocks

What happens when money managers are sitting on "staggering losses" in oil investments? According to CNBC's Jim Cramer, they could be looking to sell assets in the stock market to raise capital.

What Happened

Oil prices continue to trend lower, creating a "spillover" effect: some of the weakness in stocks can be blamed on "shortsighted managers liquidating stocks" for need immediate cash to cover margin calls, Cramer said during his daily "Mad Money" show Tuesday. The CNBC host's take is based on the opinion of commodity expert Carley Garner, who said oil prices still have more downside.

Oil prices tend to perform poorly toward the end of a calendar year into January or February, Cramer said. This should be of particular concern, as a recent report from the Commodity Futures Trading Commission said money managers, small speculators and commercial hedgers currently own "substantial long positions" in oil futures, he said. 

Why It's Important

"This has been a very crowded trade for a long time. That's why Garner's been warning us nearly all year that lower oil prices could be in the cards," Cramer said.

What's Next

Despite recent weakness in the oil market, oil prices are "still not oversold," and Garner told Cramer investors should watch the $51 WTI level to see if oil can rebound off a support level or falls below. If the downside case proves true, investors should brace for a similar spillover impact from money managers selling stocks to help deal with their losses in oil assets, she said.  

Related Links:

Jim Cramer's Ways To Spot A Dividend Cut Coming

Exxon Mobil Is The Wrong Play For An Oil Rally, Raymond James Says In Downgrade

Posted-In: Carley Garner CNBC Jim Cramer Mad Money OilCommodities Markets Media Best of Benzinga

 

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