Cramer: Use This Trading Strategy
Buy the dips, Cramer said on Thursday. The strategy’s been a moneymaker since the early March lows, and he told viewers to stick with it.
The S&P 500 hasn’t pulled back more than 5.6% since March 6. At most, we’ve seen periodic declines of 3% to 5% as the market catches its breath after a tremendous run. Investors who took profits at the top and then used these dips to buy stocks at better prices have done well for themselves.
“As we saw today,” Cramer said, “my strategy’s working.”
An early morning drop-off of 91 points in the Dow reversed course and the index finished the day 37 points higher. Anyone who bought the pullback, Cramer said, “made out like a bandit.”
One of the factors that have been buoying the market is fund managers’ desperate scramble for stocks. They found themselves heavy on cash but light on equity as the market turned up, and now they’re buying stocks en masse to keep pace with their benchmark indexes. As a result, any price weakness lures them in, which puts a floor in and prevents a sell-off.
“So I have said take advantage of their panic, get in there ahead of them and buy,” Cramer said. “It’s been the surest strategy going.”
Another noteworthy trend has been the increased buying of Citigroup , CIT Group , Fannie Mae and Freddie Mac , AIG and Sprint Nextel . While some on Wall Street attributed the action to uninformed speculation, Cramer disagreed. Neither the Securities and Exchange Commission nor the companies themselves have been steering investors away from the stocks, so why shouldn’t they be bought?
That’s especially true when you consider the leadership offered by AIG’s new CEO, Robert Benmosche, and John Paulson’s move into Citigroup. Johnson famously bet against mortgages before the credit crisis, and now he’s buying shares of Citi, which has been heavily weighed down by bad loans. That most likely indicates a change in fortune for the company. At the same time, Cramer said he likes the preferred shares of Fannie and Freddie, and Sprint might get a takeover bid if President Obama’s antitrust division wasn’t so unnecessarily aggressive.
One final point: Cramer’s leadership trinity of oil, tech and the banks just became a foursome. Now that Boeing’s 787 Dreamliner is finally on track for delivery, aerospace will also play a part in driving this market, he said. And that puts stocks like Spirit AeroSystems , Honeywell , Goodrich , Allegheny Tech and BE Aerospace in the buy column.
B.O.A.T. is the new watchword, Cramer said. As in Banks, Oil, Aerospace and Tech. And their rising should lift all stocks.
“We know the pullbacks in this market are shallow,” Cramer said. “So I think it’s wrong to worry about a tidal wave sell-off capsizing this thing.”
Cramer’s charitable trust owns Honeywell.
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