What Happened Yesterday?
What really happened to cause Tuesday's dramatic reversal of the markets? Cramer deconstructed the trading action to find out just what led to the surprising midday rally.
Cramer said it all started at 12:58 p.m. EDT, when the NYSE ARCA Biotech Index (BTK), an index that was down 22% for the year, suddenly pivoted. There was no news at this time, he continued, things just suddenly switched from sell to buy.
Then at 1:01 p.m., bond prices peaked, followed one minute later at 1:02 p.m. by a simultaneous bottoming of the S&P 500 and the Nasdaq.
Cramer said this series of reversals, all based on no news whatsoever, has all of the classic telltale signs of a programmatic rally, one where the machines decided the time was right to buy, buy, buy, which they did, almost in lock-step and with a vengeance.
Indeed, yesterday's change in fortunes seemed very artificial, Cramer concluded. The sea change could have been attributed to Twitter (TWTR), which bottomed at 1:05 p.m. and saw an accelerated rally at 1:10 p.m., but Cramer said it was clear that hedge funds were in forced-selling mode all morning, and that mode ended at 12:58 p.m.
The Power of Hate
Never underestimate the power of hate, Cramer told viewers. Incredible gains can be had from turnaround stocks, he continued, especially when no one believes the turn is for real.
Case in point, SandRidge Energy (SD - Get Report), a stock that traded as high as $67 a share back in 2008 but now trades at just $6.48 a share. Cramer said this dramatic turn of events stemmed from an undisciplined approach by the company's former CEO, one which over-promised and under-delivered time and time again.
But under SandRidge's new CEO, the company has beaten expectations for three consecutive quarters and is selling non-core assets to focus only on its more productive acreage. Moreover, the company's directors now own 10% of the company, with compensation plans directly tied to performance.
That good news hasn't been enough for the analysts, however, as there are only three buy ratings, 17 holds and five sells. SandRidge's tarnished history has Wall Street blinded, Cramer noted, which creates an opportunity for those who invest early.
Cramer said SandRidge now has better visibility with its production. It knows much much oil it has and how to get it. Put simply, SandRidge cannot afford to miss estimates, which is why those estimates have become very conservative. Shares of SandRidge trade way too cheap, Cramer concluded, and should be between $10 and $15 a share.