Mad Money

New found weakness great sign for bulls: Cramer


It may seem counterintuitive but Jim Cramer has spotted some terrible price action in a fundamentally solid company, and he thinks it's a good omen.

Specifically, Cramer is quite relieved to see that hotel chain fell in its first days of trading after coming public.


Now don't get Cramer wrong; it's not that Cramer finds any joy in the company's decline; rather that he thinks the weakness in is a sign that the IPO window is closing. "Thank goodness," said the "Mad Money host. It couldn't happen a day too soon.

The iconic Wall Street bull in New York City.
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That is, Jim Cramer has feared that a recent spate of IPOs and the sharp advance made by these newly public stocks was a sign of irrational exuberance in the market.

Not only did Cramer fear that the valuations were excessive given the near-term profit potential, he also worried that the supply of stock coming onto the market after lock-ups expired was far too great.

Cramer said the current environment had become eerily similar to the circumstances in early 2000, right before the dotcom bubble burst.

However, the decline in La Qunita as well as other recent IPOs suggests to Cramer that irrational exuberance is starting to ebb, naturally.

Of course, weakness in just one IPO, does not a trend make. But Cramer says dig down into the market and you'll find the trend elsewhere, too.

Look at, Cramer said. "It traded at $30 when it opened, and it's down 31% in the aftermarket. Or Castlight, a huge software as a service for health care play, traded at $39.80, a ridiculous 149% gain from its pricing, but has since decline 55%."

In fact, Cramer says the list is quite extensive.

"It's hardly those two. Amber Road priced at $13, rose 31% on the first day but has since fallen 11%. Paylocity, a cloud based human resources software company is down 20% from its high."

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Cramer doesn't usually celebrate declines, but he says these are a relief.

"The slate of recent IPOs has overwhelmed the stock market," Cramer said. "The declines in the stocks of newly public companies suggest to me that the market is, finally, becoming a more rational place."

Call Cramer: 1-800-743-CNBC

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