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A Cyclical-Stock Primer

Cramer shares his thoughts on 'legging into' cyclical positions.
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We are getting a real primer in cyclical-stock trading these last few days. Many of these stocks are acting tentatively here, losing momentum.

Normally that would mean they are about to roll over. When cyclical stocks stall, they plummet. This time, however, I think they are simply basing at a decent level. They will rest and roar again.

Let's take

DuPont

(DD) - Get DuPont de Nemours, Inc. Report

. This stock took off after a good quarter and now it's coming back. Today it's down a couple. Same with

Textron

(TXT) - Get Textron Inc. Report

. These two stocks were faves of mine that ran too much and I left them.

As they come in now, I am sorely tempted to get back involved. But I am unwilling simply to plunge in. How do I know whether this is the end of the decline or the beginning?

That's why I leg in. I will bid 71 1/2 for just enough DuPont to start a position. If I get hit, cool. If it goes down lower from there, I will buy more. If it ramps right back, I will have something on the sheets I can profit from. I am bidding 94 1/2 for Textron right now -- same deal. I also have bids down there for

Alcoa

(AA) - Get Alcoa Corp. Report

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and

Boeing

(BA) - Get Boeing Company Report

.

All day I am doing stuff like this. (You newbies can read

my archives to see how I do this.) With cyclicals with no catalysts, meaning they aren't about to report or speak, I can't really call the bottom. But I think the move has more to go, and I have to get started without feeling like I am about to get crushed.

I trade these stocks quite differently from, say,

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

. I want to get the best price for Cisco, of course, but I am not as concerned about timing. I don't leg in with Cisco -- I just put the darn thing on.

Cyclicals are much, much harder. You have to thread the needle. Because I can't be sure when the selloff will end, this method works well for me.

So I am sharing it.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Alcoa and Cisco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.