The $80-to-$120 Theory
Cramer has this theory: Stocks that go to $80 tend to go to $120.
Sure, it sounds like some crackpot, amateurish theory, but the man is no amateur. In fact, he said he had the empirical evidence to prove it.
These stocks are the leaders of the market, Cramer said, and the leaders tend to attract money during a bull market, which is what we’re seeing right now. The money sends them higher, cementing their status as leaders.
Cramer compared the S&P 500 at July 3, 2006 with the same day this year. The number of stocks over par ($100) jumped to 31 from 11. Of those 31, 19 were on the S&P last year and were under $100, eight were part of the index and above $100, and four were new additions. Of the 11 that were over $100 last year, three now are below par, but only because of two-for-one splits.
So what’s this all mean? Adjusting for splits, 34 stocks in the S&P 500 are over $100, including all 11 from last year and the 19 that broke the mark over the past year. For large-cap stocks in a bull market, once you break through $100, it looks like you stay there, Cramer said.
Bottom Line: It may fly in the face of reason, but Cramer can’t deny that the stocks that reach $80 in a bull market tend to go to $120. He’s devoting a whole series to this moneymaking phenomenon, and his first name is Boeing. Keep checking back for the others.
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