Mad Money

Cramer: Profiting from Alibaba inspired selloff

Stocks worth buying on Alibaba IPO induced selloff
Stocks worth buying on Alibaba IPO induced selloff

Jim Cramer thinks that the could generate a bit of a selloff.

"I think it's inevitable that portfolio managers will have to do some selling in order to raise money to buy this new issue. And because anyone running a hedge fund or a mutual fund knows to stay diversified, I see them selling profitable Internet oriented stocks," Cramer said, rather than stocks from other sectors.

Although dozens of Internet stocks may selloff, Cramer suggests keeping a close eye on three; Facebook, Google, and Apple. In all these cases, Cramer thinks an Alibaba inspired selloff presents opportunity.

Of course that begs the question, at what level should you buy?

For insights, Cramer turned to technical analysis from of Ed Ponsi, the managing director of Barchetta Capital Mangement. Following are his thoughts.



Looking at the chart below, Ponsi says Facebook made an important high around $78. It's important because it's above $72, this stock's 50-day moving average.

That matters because in July the the 50-day moving average acted as a floor of support.

Therefore, if Facebook sells off, down to the $72 level, that's where Ponsi would become a buyer, on the belief the 50-day will, again, act as a floor of support.


Looking at the chart, Ponsi points out that, for over a year, Google has been running up along a steep uptrend line that closely matches the stock's 200-day moving average.

Again, like Facebook, Ponsi says that uptrend line has consistently acted as a powerful floor of support.

Right now that line is at $570, about 4 percent below where the stock is currently trading. Therefore, if Google pulls back down to that $570 level, Ponsi says it's a terrific entry point.


Looking at the daily chart, if Apple pulls back, Ponsi thinks $97 makes an attractive point of entry. He says, at $97, investors get not one but two powerful floors of support, from both Apple's bullish trend line and its 50-day moving average.

Ponsi says this combination created a bullish entry point last month, so if it pulls back to these levels again, he'd again, buy.

Given the future prospects for all 3 companies, Jim Cramer can understand buying Facebook, Google and Apple at current levels for the long-term. However, with the Alibaba IPO at hand, he also thinks they could decline in the near-term before marching higher.

Therefore, if they do drop, Cramer says get ready to pull the trigger. "The charts, as interpreted by Ed Ponsi, indicate that the ideal entry points on a pullback are $72 for Facebook, $570 for Google, and $97 for Apple," he said.

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