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I'm Getting Sticker Shock; Supply Kills: Jim Cramer's Best Blogs

NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • Stocks breaking out of their usual ranges, and
  • The effect of an increased supply of stock.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

I'm Getting Sticker Shock

Posted at 12:22 p.m. EST on Friday, June 20, 2014

Holy cow, $131. Chevron's (CVX - Get Report) at $131? That's what I said last night when a guest in our audience asked me whether it was time to let go of some chevron at $131 and cycle into another oil.

You know what I experienced when the questioner asked about Chevron? I experienced sticker shock, a revelation that, at last, Chevron had left behind a range that it had been stuck in for a full year of trading. I had known Chevron as a stock that needed to be bought every time it dipped below $120 and then sold every time it got to the high $120s. The trade was money and it had been money until right about now, when it broke through the range to where it had not been before.

We have been experiencing sticker shock all over the place of late. For eight months, PPG (PPG) dallied in the $180-190 area. Then, three weeks ago, it broke out of that range and hasn't looked back.

The sticker shock in the oils has been breathtaking. Have you seen the action, for example, in Union Pacific (UNP) or EOG (EOG), two of my long-standing favorites? Not only have these gone from creeping higher to galloping higher, another form of sticker shock, but they've split their stocks, making the prices even more unfathomable.

Now, we are of two minds when we see this kind of behavior. The older, staid veterans tend to be repelled by it. They like the ranges like old shoes and they don't want to try on a new pair. For many of these, a stock that has broken out is a stock that is now too expensive, like what we are seeing in so many of the oil and drug stocks. Professionals are a wizened and cynical group and when they see breakouts that they aren't in, they say, "oops, I missed that one." They can always counsel and console themselves by saying, "I will wait for a pullback," but once a stock has consolidated multi-year gains, as so many of these stocks have, and then blasts off to levels never seen before, they actually tend NOT to come back.

Individuals and chartists, on the other hand, are distinctly drawn to breakouts. Many in these two cohorts actually don't want to buy until they see a breakout in the range. They aren't shocked by the sticker they are drawn to it.

As is often the case, I come out somewhere in the middle. That's because I have always said that I don't care where a stock has come from, I care where it is going to. If I think that it's going higher, I have to be willing to swallow my pride, the pride that says I should have seen the move earlier. That said, I do sometimes just say I missed it, like the moves in Walgreen (WAG) or Monsanto (MON), both of which report next week. I can't take the sticker shock there and I either have to get a pullback or I just have to shrug and say it's gotten away without me.

The best of all worlds, I think, is when you are spotting a stock that has based and seems to be about to break out. That's how I feel about all of the aerospace names. They have spent time in the wilderness. They are ready to blast off. Same with the banks. Those are two groups that might soon experience sticker shock and that's the best place to find your ideas right now in this market. 

 At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.

Supply Kills

Posted at 12:34 p.m. EST on Thursday, June 29, 2014

Supply kills.

When people talk about what can cause a top in the market, they invariably chatter about how the Fed can hurt stocks with higher rates. They grouse about valuation. They even hang on every word of the Fed chief, Janet Yellen, who when asked yesterday whether stocks were too high, gave a less than enthusiastic "no," but nonetheless refused to put the kibosh on the market.

But they almost invariably never talk about the real bull slayer: increased supply of stock, particularly from the initial public offerings and gigantic secondaries that contain huge chunks of insider stocks.

When we examine what caused the now almost-forgotten decline in the highfliers from March to, May I would say the primary culprit came from a rash of initial public offerings of second-rate quality and a massive amount of insider selling from some of the hottest stocks out there. Those include the once-beloved security software company FireEye (FEYE - Get Report), which sold 14 million shares at $82 and quickly plummeted to the mid-$20s, as well as the e-commerce and big data plays Rocket Fuel (FUEL) and Splunk (SPLK), both of which plunged more than 50% after their offerings.

At the height of the market, we were seeing four or five IPOs a day, many distinctly lower-quality biotech and software-as-a-service companies where if you bought at the opening you were quickly decimated.

Not only that, but we heard about prospective $10 billion deals, the likes of AirBnB,Dropbox and Box, all of which seemed a little pie-in-the-sky given the pounding that similar public stocks were taking every day. But after almost daily shellackings among the like-public companies, in a matter of days these deals were shelved and the initial public offering window slammed shut.

Supply had diminished, at last as potential sellers found levels that no longer appealed to them.

Just as supply kills, a lack of supply coupled with a change in demand given lower prices can re-charge a bull market, and that's exactly what we have seen over the last month.

Lately we've seen sporadic and positive IPOs where you actually made money buying the pop at the open, including the deals for (JD), the fast-growing Chinese Internet company, and Arista Networks (ANET), the best-in-breed networker. That's because sellers were willing to give a little, bankers sensed that the public had taken too much of a beating, and buyers were no longer overwhelmed. The quality of offerings was much higher than at the top of the market.

Now, however, the market has rallied enough that we are seeing a return to a level of supply that is making me uncomfortable. Yesterday we had five IPOs -- way too many for me -- and only two made you money. The other three truly stunk up the joint. Today we caught three IPOs and, fortunately, they were all good ones, particularly, Markit (MRKT), a company that dominates the pricing and reporting of many complex and abstruse financial instruments. That deal is so good, with such exceptional bloodlines, including the backing of General Atlantic, that I would still buy it up here. I backed a GA deal before,TriNet (TNET), which turned out to be one of the real stalwarts in the market. I believe this deal will be a good one, too, in part because General Atlantic has two terrific members on the board and they did not sell stock on the offering.

Nonetheless, once again, there is too much supply coming on to the market with a huge slate of deals for next week. We are hearing talk of a revival of the shelved big deals. We haven't seen big secondaries yet, but that could be next. All I can say is that this supply, above all, is worth watching and worrying about. If it keeps up or gets hotter and heavier, we must be on heightened alert and be ready to lighten up before supply wreaks its havoc again.

 At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.

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