The secret catalyst behind skyrocketing stocks

Jim Cramer Mad Money
Source: CNBC

Jim Cramer thinks it is time for a little earnings education; because it is seriously fishy when stocks such as Skechers and Columbia Sportswear report earnings and then shoot through the roof immediately following.

Yes, these are good stocks but it's not like they invented a life-saving Apple device that would warrant this action.

"The mystery of how these stocks can make major moves right in front of your eyes needs to be unlocked for you to understand how the stock market really works. Yes, it's really that important," said the "Mad Money" host on Tuesday.

There really are two reasons that hold the answer to these questions. Cramer's first reason is that both Skechers and Columbia did very well in the latest quarter, thanks to new product innovations and excellent sales.




Skechers
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Skechers

The second reason is one that most investors may not be aware of.

"The more important explanation for these staggering jumps is the one I have genuine insight into because I've been there," said Cramer.

The "Mad Money" host said that many hedge funds and brokerage research houses use different third-party information services in order to predict the health of a company and the direction of the stock.

The problem with these sampling services, according to Cramer, is that they have frequently underestimated sales and produced inaccurate results. Thus, the moves in both Skechers and Columbia last week were a result of hedge funds' desperately reaching for a stock to cover their short sales that were created due to faulty information.

Cramer wants to stress to investors how important it is to be cautious with third-party information sources. Often when you see a stock such as Columbia and Skechers start to tank mysteriously in the middle of the day, it signals that the research companies have indicated to the hedge funds that there is a weakness in the stock that no one knows about.

"I'm calling it manipulation because it certainly can't be considered responsible analysis and leads to horrific trading that scares investors and makes them believe the company's doing far worse than it really is."

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Cramer thinks this is the case with Skechers, Columbia, and is even putting VF Corp into the category of victim stocks. He hopes that this quarter will finally inspire investors not to use these manipulative services.

"Wall Street's on the wrong side of the trade with these two but, if you believe in them like I'm urging to you to do, you can be on the right side of the investment."

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