Bulls Have a Tall Order; IPO Drag Is Almost Over: 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:

  • how it will be hard for bulls to live up to the hype, and
  • what to make of he current IPO season.

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

Bulls Have a Tall Order

Posted at 11:02 a.m. EST on Tuesday, April 8, 2014

Tough to tell what you want if you are a bull. We know that the sellers have to wash out, and we aren't yet seeing signs of that. We know that the overflow and backup of initial public offerings has to relent, and that has not happened either. We know that we need to see people who haven't liked stocks, such as the SunTrust analyst who upgraded Yelp (YELP), go positive. We know that we need to see interest rates go higher. And we know that it is vital that Alcoa (AA) not totally stink up the joint.

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We need to see the technical damage healed. We need to see the margin calls ending. We need to hear that the redemptions and send-backs are over. We need to get some earnings in the hard-hit sectors affirmed. We need to see more takeovers as the market comes down. We need to see some negative biotech analysts go positive.

We need to see...

Yep, the bulls have a tall order ahead of them. The bears, on the other hand, have an easy run. There are profits galore, insider selling to beat the band and a never-ending supply of high multiple to sales, not earnings.

The strange thing, though, is that the bears do have a real strike against them: People are turning extremely negative in the face of the tape. My friend Dennis Gartman came on "Fast Money" yesterday and traced out an apocalyptic scenario that I don't see happening. I am thinking the selling can be contained to last April's swoon and not even necessarily to January's blowup.

But you need more Gartmans, and you need more data points that can send bonds down in price and up in rates, which is the proximate cause of what caused yesterday's bizarre selloff, where all but a handful of bond-market equivalents and stocks with no long-term gains could rally.

The recipe is a good one: an up opening that wasn't sustainable, a whoosh down to test some of yesterday's levels, and then stabilization for the moment.

[Read: General Motors or Ford: Which to Buy?]

The only problem? It's awfully early. If you haven't bought anything yet, you might have to hold off soon. The bounce might be ephemeral and must last through redemption hour between 1 and 2 p.m. and then not get slogged down in profit-taking from the buys in the last half hour as we had on Monday. 

The IPO Drag Is Almost Over

Posted at 11:36 a.m. EST on Wednesday, April 9, 2014

The initial public offering window is closing. Thank heavens the window is closing. That's my conclusion from the weak opening for La Quinta  (LQ), the hotelier, which today priced its IPO at $17 and broke price from the get-go, opening at $16.75. This after lowering the range from $18 to $21 before the deal was priced.

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The disappointing opening speaks loudly, not about La Quinta, which, while debt-laden, is a very well-run chain that has solid growth, but about the state of the IPO market. Put simply, this pipeline of deals has overwhelmed the stock market at last, and many more deals are still to come this week. And while that makes La Quinta a pretty decent buy, as it has 7% growth in revenue per available room, or revpar, the key metric for its business, the saturation is now palpable.

People often underestimate the negative hold a large number of IPOs can have on the market. First, let's accept that we have the equivalent of a thorough carpet-bombing of the market, the most deals since 2006, according to the leading and really only authority, Renaissance Capital.

This much supply is a curse. It often coincides with a market top, and it is plain abusive when you think about it, as the companies and the bankers rush to flood buyers with more deals. I say abusive because I think we are at the moment when the syndicate heads are saying to the salespeople, "You go tell your clients that they got the good deals earlier, now they have to take the bad." Those are actual conversations. I have been on the receiving end many a time, and it's pretty much the unwritten law that you have to eat some losses as the window closes.

Yep, we're at the napalm stage.

Any look back from recent IPO deals shows you how weak things have gotten. Consider these following sorry IPO war stories just from the tech segment. Coupons.com (COUP), which makes digital coupons, traded at $30 when it opened, and it's down 31% in the aftermarket. Castlight (CSLT), a huge software-as-a-service for healthcare play, traded at $39.80, a ridiculous 149% gain from its pricing, but it has since declined 55%. Now you can say that Castlight, like Coupons, is still above the original pricing, so if you got in on the deal you are still making money. But how many really got in except the favored few who will now be asked to pay the piper?

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It's not just those two. Check this litany: Amber Road (AMBR), which I said sounded like a craft beer company but is actually a cloud-based global trade management software company, priced at $13, rose 31% on the first day but has since fallen 11% and remains up 17% from the pricing.

That's about the best of the remaining lot. Paylocity (PCTY), a cloud-based human resources software company, is down 20% from its high and is up 13% from its IPO price. Q2 Holdings (QTWO), a cloud-based software company for community bankers, is down 10% in the aftermarket and is only up 5.5% from the deal price. Worse, 2U (TWOU), a cloud-based online education software company, and Borderfree (BRDR), a cloud-based international e-commerce company, are now flat and down 13% respectively from their pricings.

What this says is that you are a real sucker if you buy the opening of a tech company IPO, particularly a cloud-based one. Is it any wonder that all of the existing cloud-based companies have been hammered? Who has the capital to absorb all of those deals and hold on to the shares of Salesforce.com (CRM) or Workday (WDAY) or Cornerstone OnDemand (CSOD), which are all much better and well-seasoned software-as-a-service companies? No fund I know of. And while biotech stocks still go to a nice premium, they too are getting very heavy in the aftermarket.

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Buying at the opening has become a fool's game. And that means, mercifully, that we will soon be done with the new supply. That's terrible news for those who still want to crawl through the window -- and their banking friends -- but great news for the already public markets. Demand can finally catch up to all of the stock these bankers have indiscriminately thrown at the stock market.

The IPO shelling will soon end. It always does.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, held none of the stocks mentioned.

This article was written by a staff member of TheStreet.

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