Mad Money

Cramer Explains ‘Bizarre’ Market Action

Although the greater market sank on Monday, shares of Green Mountain Coffee , Netflix and Whirlpool pushed higher. Each stock went up for different reasons, but Cramer noted that each had one thing in common, too: there are no sellers to speak of, no supply to be had, at least at these levels.

These big moves were thanks to institutional traders, Cramer explained. Basically, stocks move because they trade to supply. If there’s no supply, meaning no one is willing to sell at a certain level, then the buyers move them up to prices where supply can be found. So if a trader wants to buy a million shares of a certain stock at $26, but that $26 price is only good for retail (for a couple thousand shares), then the trader has to move the stock to where he/she can get enough supply to buy a million shares.

Whirlpool , for example, took off from $55 a share last week to $70 today. There are only 76 million shares of Whirlpool, which isn’t a lot. There are a lot of short-sellers in the stock because it’s been a serial underperformer, Cramer said. So going into the quarter last week, 10 percent of the shares were sold short. But unlike other quarters, Whirlpool managed to deliver big and guided higher, too. The short-sellers were taken by surprise and had to cover their short positions, so they wound up having to pay up. They have to pay more and more, as other people are interested in the stock on the company’s strong quarterly results. But then there is the problem of lots of buyers and no supply. So the institutional traders get nervous and tell their broker to take the stock to where the supply is. Sure enough, Whirlpool soars to $70.

The bottom line?

“When you get a short squeeze, it’s where she stops nobody knows, except the buyers themselves, who just won’t quit until they’ve brought their short positions in because they were wrong and thus no longer have any edge,” Cramer said. “In other words, these moves have nothing to do with valuation.  It’s just a question of supply and demand, and as of today, the short-covering buyers still haven’t found enough supply to end their agony.”

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