If you have big gains in the stock market, now's the time to take some profits, Jim Cramer cautioned his Mad Money viewers Tuesday. This rally is starting to show its age, and the investors propping it up may soon head for the exits.
Cramer said there are three groups of investors fueling this rally. The first group is foreign investors, those looking for the hottest global markets to invest in. The only problem, they're often late to the party, buying high and selling lower.
The second group of investors sending stocks higher are aggressive, momentum-oriented mutual funds. These funds have little discipline and have no problem sending shares of Apple (AAPL) - Get Report up 72% from its March lows.
The final group of "investors" are novice retail traders and sports gamblers that have turned stocks into the latest sports book. These traders are snapping up shares of Moderna (MRNA) - Get Report, Snap (SNAP) - Get Report, and Spirit Airlines (SAVE) - Get Report because they're cheap and tend to have big intraday moves.
Cramer said history is not on the side of these momentum traders and these shareholders are not a good base on which to build new positions. That's why Cramer said he'd take some profits and move those gains into high-quality divided and defensive stocks that will be able to weather the coming storm when our current momentum runs out.
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Don't Chase Momentum
Traders are beginning to get reckless, Cramer told viewers, and it's time to air some pet peeves. Cramer said it's never good when stocks are moving on no substantive news, but that's exactly what we're starting to see as analysts keep raising their price targets based on nothing at all.
Case in point: Square (SQ) - Get Report and PayPal (PYPL) - Get Report, which are up 67% and 60% for the year respectively. Both of these payment processors are excellent companies, Cramer said, but their shares are fully valued. Despite having weaker-than-expected earnings, analysts are still tripping over themselves to raise their targets on nothing substantive.
Chasing momentum is never the right approach, Cramer told viewers, especially in low-dollar stocks. Stocks don't trade in the single digits because things are going well, he quipped. Fortunately, with the advent of fractional shares, smaller investors don't have to speculate on penny and dollar stocks, they can buy small amounts of great companies like Apple or Amazon (AMZN) - Get Report.
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Off the Charts: Trading Ideas
In the "Off The Charts" segment, Cramer checked in with colleague Larry Williams for ideas on a short-term trade that can net investors some quick gains.
Williams looked at the historical patterns of the S&P 500 and noted that historically, the markets tend to rally going into the July 4th holiday. In fact, if you bought into the S&P six trading days ahead of July 4th, you'd be a winner 57% of the time over the past 21 years.
But if you bought into the S&P just four days before the holiday, you'd be a winner 80% of the time, and if you bought just two day before, the odds jump to 95% of the time, with an average return of 14.6%.
Of course, past performance does not factor in additional COVID-19 outbreaks or presidential tweets wrecking the markets, but historically, according to Williams, the odds are overwhelmingly in your favor.
Executive Decision: Lands' End
In his first "Executive Decision" segment, Cramer spoke with Jerome Griffith, president and CEO of Lands' End (LE) - Get Report, the retailer with shares that are off 44% for the year, despite already being 96% online before the pandemic.
Griffith started off by noting that Lands' End is the fifth largest, single-brand retail website in the U.S. He said after exiting from Sears and bringing on new management in 2017, his company has been re-establishing itself, reconnecting with customers and growing its business.
Lands' End has new partnerships with Kohl's Corp. (KSS) - Get Report and Griffith said they're seeing a lot of synergies with Kohl's customers, synergies they didn't have with Sears customers. The company is also active on Amazon, bringing the brand to new and old customers alike.
While some Lands' End shoppers prefer physical stores, Griffith said the company is taking a pause on new openings to focus on technology, making online shopping faster with more payment options and dynamic programs to help boost profit margins while continuing to offer value.
Off the Tape: Impossible Foods
In his "Off The Tape" segment, Cramer spoke with Pat Brown, founder and CEO of the privately-held Impossible Foods, the plant-based meat alternative.
Brown said they're very excited about their recently-announced partnership with Starbucks (SBUX) - Get Report, which will be their biggest rollout yet. He said the partnership is an incredible opportunity to raise awareness and trial with consumers.
When asked about their decision to use GMO ingredients, Brown said for many consumers, the decision is a non-issue. What matters most is how the product tastes and how healthy it is for you. Impossible products have the same protein quality and content as their animal counterparts, but with better taste and no cholesterol.
Brown said over the next 15 years, all animal protein will be replaced by plant-based alternatives. The pig and the cow, he said, are not getting any more delicious. But Impossible's products are constantly being reengineered to be more delicious and better for customers and the environment.
Here's what Jim Cramer had to say about some of the stocks that callers offered up during the Mad Money Lightning Round Tuesday evening:
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At the time of publication, Cramer's Action Alerts PLUS had a position in AMZN, AAPL, SBUX.