Investors could easily get swept up in the euphoria of a big 497-point move in the Dow, especially after the past few months we’ve had. Now that Treasury Secretary Geithner has finally announced his new plan for banks’ toxic assets, people might assume that everything will be fine. With that problem solved, they think, it’s nothing but up from here.
Of course, the situation is more complicated than that. Not that there’s no reason to be positive. But investors need to know the full story if they’re going to make any money in this market. There was more than just Geithner at work today. The Federal Reserve’s Term Asset-Backed Securities Loan Facility, an easing of mark-to-market accounting rules, the return of the uptick rule for short selling and a strong 60 Minutes interview from President Obama all played their part.
The question, though, isn’t just what caused the rally, but rather whether it will continue. To find out, Cramer looked at the 10 stocks that made the move possible. If there’s strength there, then we can probably look forward to reclaiming some of the heavy losses we’ve seen lately.
Exxon Mobil has been the victim of another rally that seemed unreal, at least to some: oil’s climb above $50. But Exxon has signaled that the move was very real, as a weakened dollar, less production and low gas prices push the stock, and the sector, higher.
JPMorgan Chase , which jumped 25% on Monday, might be the true bellwether of these 10 names. We need a bank strong enough to buy both toxic assets and the healthy assets of other failing financials. If JPM can fill that role, then the company could help to push the Dow up another 2,000 points, Cramer said.
Wells Fargo was another winner, soaring 24% today. This stock’s performance, combined with great existing-home sales numbers, might be signaling the housing bottom Cramer has talked so much about. He thinks Washington’s toxic-asset and mortgage-modification plans make WFC a great play on housing’s turn. It’s interesting when you consider that the bank was up for nationalization just two weeks ago.
Bank of America shot up 26%, reaching a level that is double the price at which Cramer recommended it back on March 10. BAC might suffer the most should these government proposals and changes in the market not work out, but Cramer still thinks the stock is the number one lottery ticket on a turn in the economy. And he’s confident Washington’s help will pay off here.
Higher oil prices are good for Chevron as well, Cramer said. The company is positioned to benefit well from its continued drilling over the past four years.
General Electric reversed its Friday losses, doing its share to boost the market. The company doesn’t need money like many other firms, and its strength seems to say that a worldwide recovery is still possible.
AT&T , which doesn’t exactly fit into Cramer’s thesis that oil, tech and financials will lead the market, was also up on Monday. He took it as a sign that we shouldn’t be concerned about inflation. If that were a concern, this stock wouldn’t have performed so well.
In tech, Microsoft and IBM led the sector. MSFT isn’t Cramer’s favorite in the group, but he said the stock’s move is a sign that the tech rally is widening. IBM, on the other hand, reported a strong quarter and should enjoy a great second half to 2009 as long as the dollar stays weak.
Lastly, there’s Procter & Gamble . Normally a move up in this stock would indicate that the economy is headed down. But consumers were so cash-strapped that they’d even cut out P&G’s name brands. The fact that the company is doing well now means that those consumers are more willing to pay up. That’s good news. Plus, P&G is a weak-dollar play, so like IBM it should do well going forward.
So this rally is for real, Cramer said. The oil-tech-financials trifecta is taking us higher, as is a coordinated effort from the government as well. The only word of caution: Take some profits. Remember that bears make money, bulls make money but hogs get slaughtered. Don’t let a rally like today pass without pocketing some cash.
Cramer's charitable trust owns Chevron, General Electric and JPMorgan Chase.
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