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Despite a 110-point jump Wednesday, Jim Cramer warned viewers of his "Mad Money" TV show that not everything is safe to buy -- in particular, ethanol-related names.
In fact, it is time to clear out of the ethanol stocks as soon as possible. However, sell incrementally, Cramer advised, not dumping everything at once. The ethanol fad has come to an end, he said.
went public. This is the first sign you need to sell, he said.
Several other ethanol companies, like
Aventine Renewable Energy
, are also on the verge of going public, Cramer said.
Soon the market will be full of ethanol stocks, and the prices in this sector will go down. Ethanol stocks are nearing a period in which there will be too much supply and not enough demand. It is in its last stage of a speculative-stocks-fad cycle.
Market players saw this with the dot-coms in 1999, and the power-merchant and the oil-service names too, Cramer said.
Cramer started recommending ethanol on "Mad Money" with the highest quality stocks, he said. First there was
Archer Daniels Midland
Then there was
. When MGP's COO, Tim Newkirk, was on
the show Tuesday, he said there was too much hype and even potential overhype in the ethanol market. (To view Cramer's June 13 interview with Newkirk,
Investment bankers are in on the game, and the secret is out, Cramer said. They are creating too much ethanol-stock demand. Ethanol companies are not bad companies, but Cramer believes they are going to stop being hot for good.
"The bottom line is that ethanol has become too celebrated to make you any more money," he said. "Don't wait much longer than a week to sell it."
Margins of Error
Everyone is talking about the Consumer Price Index that was released Wednesday, but Cramer believes people need to forget about it.
"If you are in stocks, there is one thing you need to think about," he said, "your fellow shareholders."
There are two things that would move any stock and they are buyers and sellers. Market players need to know who their buddies are. They need to know who is going to buy and who is going to sell.
As long as people know who their fellow shareholders are, they know where they stand in the market, Cramer said.
"I don't believe we are out of the woods yet," he said. "There are a lot of bears out there."
It's hard to be bullish in times like these. Hope needs to be crushed. It is not a part of the equation. The market is still full of bad shareholders. That means people need to stay defensive, he said, adding that he would still stick with the supermarkets stocks.
What defines a bad investor is anyone who borrows money to buy stocks, Cramer said. It's called buying on margin.
"The single most important indicator of the market is how much margin debt there is in the market," he said.
When there is a high level of margin debt, it is bad. And when there is a low amount, that is good and players should buy.
For stock prices to increase, people cannot be borrowing money to buy them, Cramer said. Artificial demand is not a good thing. These types of shareholders are your enemies, they are out to get you, he said.
Right now, not only has there been a lot of margin debt, but it has been increasing. Increasing margin debt is a very bad sign.
These types of shareholders are considered bad because people who buy on margin don't have much discretion as to when they have to sell their stock.
Also, since stocks are going down, margin players might not be able to put out the collateral, he said. If people can't pay, brokers reclaim their stocks. Massive selling equals a bad market.
Right now the margin debt in the
is $50 billion higher than it was in 2005. The numbers don't lie.
"These numbers are discouraging for people who think we are near a bottom," Cramer said. "You need to watch this number like a hawk."
In a debt-ridden market such as this, you have to be defensive, not aggressive, until this number goes down. Cramer advised his viewers that if any of them own stocks on margin, they should get out.
Am I Diversified?
In this type of market you need to be defensive and you need to be diversified, said Cramer. That is how you protect yourself.
The first caller to participate in "Am I Diversified?," a segment in which viewers call in to have Cramer vet their portfolios for diversification, had the following five stocks in his portfolio:
- Bank of America (BAC) - Get Bank of America Corporation Report
- Deere (DE) - Get Deere & Company Report
- Halliburton (HAL) - Get Halliburton Company Report
- Alaska Communications Systems (ALSK) - Get Alaska Communications Systems Group, Inc. Report
- Johnson & Johnson (JNJ) - Get Johnson & Johnson Report.
Cramer called the portfolio "smacking good," saying a bank, a farm-equipment company, an oil company, a telecommunications company and a drug stock makes this a diversified portfolio.
The next caller owned the following stocks:
- Chevron (CVX) - Get Chevron Corporation Report
- Freeport-McMoRan Copper & Gold (FCX) - Get Freeport-McMoRan Inc. Report
- Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report
- MEMC Electronic Materials (WFR)
- Verizon (VZ) - Get Verizon Communications Inc. Report.
With an oil and gas, a mineral, a bank, a tech and a telephone company, this portfolio also got Cramer's stamp of diversification.
The final portfolio under the microscope consisted of these stocks:
- IBM (IBM) - Get International Business Machines Corporation Report
- Starbucks (SBUX) - Get Starbucks Corporation Report
- TD Ameritrade (AMTD) - Get AMTD IDEA Group American Depositary Shares each representing one Class A Report
- Capstone Turbineundefined
- Dynegy (DYN) .
Cramer said he would get out of Capstone and buy a health care stock.
Cramer also reached into the "Mad Mail" mailbag and answered a viewer who wrote in to ask Cramer if
fit the description of a bottom to buy into. Cramer said that he currently owns Microsoft for his
Action Alerts PLUS charitable trust and he is getting killed. He did not recommend buying it.
Cramer was bullish on
Cramer was bearish on
Harmony Gold Mining
Energy Conversion Devices
For more of Cramer's insights during the most recent Lightning Round, click here.
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At the time of publication, Cramer was long Halliburton, Microsoft, TD Ameritrade and Yahoo!.
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