Mad Money

Game Plan: Sector Rotation for Dummies

Have you noticed the massive sector rotation taking place right now? A ton of money is moving out of industrials and commodities – especially agriculture and oil – and into tech, retail and the financials. Sector rotations happen all the time, and they’re often for the right reasons. But Cramer is skeptical about this one.

Game Plan

Cramer has nothing positive to say about the financials. The strength in retail is going to be short lived as it is pegged to the stimulus checks and the weather getting warmer. As for tech, well the Mad Money host just threw that entire sector in the Sell Block on Thursday.

So if he’s right, and this rotation is bogus, then there’s likely going to be another rotation right back into the old groups. But the only way to know for sure will be to look at some of next week’s earnings.

Cleveland-Cliffs , the largest independent producer of iron ore, will be the first hint when it reports on Monday. If the stock rallies after the earnings, the rotation out of commodities could be over right then and there, Cramer said. Anadarko posts numbers Monday as well and Cramer is predicting good things. If he’s right and the company beats, look for a rotation back into natural gas.

Tuesday’s evidence will come in the form of earnings from Cisco and Fannie Mae . Both these stocks are critical to keeping the current rotation alive, according to Cramer. But remember when Cisco reported last quarter and single-handedly killed the tech rally with its awful guidance? That could happen again. And the order is equally tall for Fannie, a titan in the sector that is crucial for the financial rally to continue. The company needs to post a smaller-than-expected loss coupled with an equity financing for Cramer to believe the rotation into financials has any legs.

Finally, Wednesday brings Transocean earnings. Cramer’s favorite deep water driller holds the final key to knowing whether this rotation is over. “You will quite simply not get a rally [in oil] without a great number from RIG,” he said. He fully expects the earnings to beat estimates.

By then, you will know whether this rotation from industrials and commodities into tech, financials and retail is legit. Cramer doesn’t think it is, but only the earnings will tell for sure.

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