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Cramer: Buying these stocks is like trading 'on quicksand’

Monday, 16 Sep 2013 | 10:51 AM ET
Cramer: Avoid these stocks, it's like trading 'on quicksand'
Monday, 16 Sep 2013 | 9:32 AM ET
With so many companies rallying of late, CNBC's Jim Cramer questioned whether most of the market is overbought and warned investors that many names are like trading "on quicksand."

Many of the stocks most loved by the market may be troublesome for investors moving forward, CNBC's Jim Cramer said, and buying these names could be a dangerous proposition in the near term.

"I think a lot of people were short, because all you saw was the government could be shutting down, Summers comes in, you have the Fed meeting," Cramer said on "Squawk on the Street" Monday. "Suddenly you have this event, it was a lightening bolt for a lot of people. A lot of hedge funds had to cover exactly what they were shorting."

As a result, he said that overseas stocks that many firms were buying are less attractive and some people "are just literally caught here. The hedge fund trade, just annihilated this morning."

"It is just a futures bonanza people are covering, covering, covering because they really were counting on taper. They were counting on Summers. They were counting on government shutdown ... and now those things seem" far away, he added.

(Related: Summers withdrawal removes pressure to cut Republican deals)

Cramer said that many in the market are "leaning on" stocks in the home building sector, such as Lennar and Masco, while other companies like American Tower and firms in the paper industry are currently experiencing a short squeeze.

One area that has potential are mortgage banks, particularly regional names, said Cramer. "Go back to these mortgage banks that are still not that expensive. … Regional banks, they had been thrown away, they had not participated in this last leg of the rally. You can be in those."

However, the one thing Cramer said he wouldn't chase are some of the strongest stocks in the recent rally. "Are you going to come and buy Starbucks at $77? You going to buy Disney at $68? Is that what you're going to do?" he asked.

He pointed out that Disney, for example, rose 4 percent on news of a stock buyback and that may be a sign that it is overbought.

At these levels, "you come in and you're on quicksand. I don't like to buy on quicksand," he said. "Don't necessarily buy these companies that have been doing well betting on a recession or a slowdown.

(Related: Ready for a pullback? Don't try to time it)

"You're seeing the stocks that had been thrown away come back and those stocks that have gone up through this period of higher rates come back down. Don't be suckered," he added later in the show.

—By CNBC's Paul Toscano. Follow him on Twitter @ToscanoPaul and get the latest stories from "Squawk on the Street"

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