Mad Money

Pin action: Bowling for dollars stock market style

Expectations are everything: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

If you're nimble, the next time you see this kind of pin action, Jim Cramer said, you may also be looking at opportunity.

No, Cramer isn't talking about bowling literally.

By pin action, he's referring to the market phenomenon in which shares of one stock take down shares of a rival. Cramer calls it pin action because it's similar to the way in which one falling bowling pin can knock over another pin.

When it happens, sometimes the rival becomes oversold and strategic buyers can profit from the pessimism.

Alan Thornton | Stone | Getty Images

To support his thesis Cramer pointed to recent declines in Vitamin Shoppe after competitor GNC reported earnings.

"This is a textbook example," Cramer said.

"Back on February 13th, GNC, the huge vitamin, supplement and diet product chain, that was widely viewed as being disappointing. It was just a subpar quarter. In response, GNC's stock got slammed, falling more than 14%."

However, it was the decline in GNC rival Vitamin Shoppe that presented opportunity.

In sympathy, "Vitamin Shoppe declined about 6% in the wake of GNC earnings," Cramer noted, with the Street fearing that woes vexing one would also be problematic for the other."

In fact, "after GNC reported, the and slash estimates," Cramer added.

"However, when less than two weeks after GNC, the company delivered a slight beat," Cramer explained. "Vitamin Shoppe stock shot up 8%, regaining every point it lost in response to the GNC miss and then some," Cramer noted.

Therefore, had you bought Vitamin Shoppe on GNC's decline, you'd have turned some fast profits.

Read more from Mad Money with Jim Cramer
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Now if you're a long-term individual investor, make no mistake, this is a lesson from Cramer's days as a top hedge fund manager. "It's a trade strategy," he said. Nothing more.

Call Cramer: 1-800-743-CNBC

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