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The market can send mixed messages like a psychotic lover. Think Lara Flynn Boyle’s Stacy from Wayne’s World. You know, the girl who bought Mike Meyers a gun rack? But the behavior of stocks seems less erratic when you know what’s driving them.
Take Tuesday’s action, for instance. So-called recession plays Coca-Cola [KO
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] and General Mills [GIS
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] looked strong, but so did PPG Industries [PPG
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] and Chevron [CVX
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], companies that need a strong economy to thrive. Within individual sectors, the action was just as confusing. Tech bellwethers Google [GOOG
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] and Apple [AAPL
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] took their respective lumps, while Texas Instruments [TXN
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] and Qualcomm [QCOM
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] finished the day higher. Natural-gas names Ultra Petroleum [UPL
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] and Cabot Oil & Gas [COG
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] soared, though National Oilwell Varco [NOC
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] and Transocean [RIG
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] got pummeled.
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But there was a tangible force working behind the scenes today: money managers. The heads of the market’s big hedge funds and mutual funds “are in a desperate race with the clock,” Cramer said, and they’re scrambling to show good performance for the month and year. October is “far more important, to explain the trajectories of today’s stocks, than many of you might realize.”
In the hedge-fund world, early November is when clients must decide whether or not they’ll stick with a particular firm, because they can’t jump ship at the last minute in December. So fund managers bid up their holdings in late October to boost their numbers, giving these clients a reason to stay. Otherwise the managers would be hit with a wave of redemptions.
As for mutual funds, a good number of them end their fiscal years in October. Rather than deliver gains in December, leaving investors little time to adjust their tax strategies, managers lock in those gains now.
The strategy then is for funds to mark up their biggest names to generate better returns. Remember, these titans deal in millions of shares, which allows them to lift the price a couple of dollars and their year-over-year performance by a half percent or so. Do this with three, four or five stocks and that’s enough to keep shareholders vested, possibly attract new clients and, most importantly, provide these managers with some job security.
This all happens in the last few days of the month. Cramer told viewers to watch stocks on Tuesday, Wednesday and Thursday specifically, as hedge and mutual funds push their best holdings higher. On Thursday afternoon they’ll stop, he said, and “defend their markup.”
Marking up stocks is illegal, of course, which is why these funds stop on Thursday. The feds will be watching on Friday, October’s last business day. But while the government will prosecute for final-day markups, they don’t for previous days. And money managers use that to their advantage.
So what’s this mean for the rest of us? If you want to sell some stocks, wait until Thursday afternoon.
“That could be your best sell price,” Cramer said.
Cramer's charitable trust owns Chevron, PPG Industries and Qualcomm.
Call Cramer: 1-800-743-CNBC
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