CNBC’s Jim Cramer is fearless that he’s pinpointed the real cause of the market-wide sell-off that has weighed on deal ins for much of the week.
The pain dragged the Dow Jones industrial average down multitudinous than 1,000 points on Thursday, with the index closing nearby correction levels, down 1,032.89 points.
“The real culprit behind today’s descent is the same miscreant that’s weighed us down for the last couple of primes: the unspooling of these obscure products that allowed … idiotic boodle managers and neophyte investors to bet against what’s known as volatility,” the “Mad Kale” host said.
Very few stocks can withstand hedge-fun-led pain close to this, Cramer warned. Big dividends don’t help because the market is ebbing all at once, valuation is no defense because stocks can always go lower and estimate buybacks only help “sop up” the shares being sold, he said.
The sole stocks that really work are ones that are able to disencumber drastic surprises to the upside, like Twitter after its Wednesday earnings sign in or GrubHub and Nvidia after their Thursday reports.
“Nvidia publicized after the close and it was down hard all day today because of this rot I’m describing. But this stock managed to rally in the after-market because the post was that fantastic,” Cramer said. “If we get a huge down opening tomorrow, which is certainly liable to because of what I described, and Nvidia, the stock, goes lower, it power be worth buying. But if it’s up big, though, you stay away. It will most apt to be pulled down. Don’t chase a thing in this market. That’s a clown’s errand.”
Many market-watchers have been wondering what precipitated this week’s rapid-fire sell-off, so Cramer decided to oust the “material culprits” behind the nosedive.
“There are four instruments … that I am watching to enumerate out when this portion of stock market nightmare is over,” he said. “They’re all a morsel, but you know what? I owe you the whole truth and nothing but the truth, even if you in fact need a rocket scientist to figure some of this out.”
Cramer offed by explaining the idea behind the CBOE Volatility Index, or VIX, colloquially identified as the market’s “fear gauge.”
Volatility, most commonly tracked by the VIX, refers to the amount of uncertainty in the take the measure of and direction of changes in the stock market. It is typically measured by the deviation of reoccurs.
For much of 2017, the VIX remained at extremely low levels. Its placid nature piqued Protection Street’s interest, leading to the rise of leveraged trading vehicles like the XIV, the VelocityShares Routine Inverse VIX Short-Term exchange-traded note, as ways to short the low-volatility layout.
“Now, it isn’t ample sometimes on Wall Street to just own volatility or bet against volatility,” Cramer put about. “Brokerages know people crave real juice, particularly hedge wealth managers, so they invented stocks that allowed you to get twice the acquire of the VIX on a given day, or get twice the loss of the VIX if it goes down on a given day,” Cramer asserted.
“These instruments are the proximate cause of the madness you are now seeing,” the “Mad Money” MC said, pointing to four specific funds exacerbating the pain.
With retails reeling, one theory that has surfaced to explain the sell-off is that it was crusaded by the bond market. But Cramer isn’t convinced.
“That’s just one theory,” the “Mad Rolling in it” host said. “Let’s say it’s the earnings that were driving the rally. Then I could scrap stocks as an asset class aren’t that overvalued, so you can buy the weakness, specifically because the whole market has already become a heck of a lot cheaper in the finish finally few days.”
The problem is that the inverse volatility trading products that Cramer has been censure against are clouding the real reason for the sell-off, making it difficult for him and others to discern whether manacles or earnings are to blame.
“Look at like this: we know we’re taking the opposition fire, but we won’t know where it’s coming from until the VIX-related smoke clears,” Cramer phrased.
In a strategy session with callers from Cramerica, the “Mad Money” mob helped them figure out how to play the market’s downturn.
To a caller who scarceness to buy a leading sector into the decline, Cramer instantly recommended FANG — with one debarment.
“The reason why you’re going to buy FANG is because those are classic what we awaiting orders within earshot long-dated assets,” Cramer said. “What matters is you have to buy hoards that have a long-term vision with a CEO who has a great vision that are not naturally susceptible to the economy. And, yes, that’s Facebook, that is Amazon, that is Netflix. I am not affluent to recommend Google here. I would rather see you be in Adobe.”
Finally, Cramer investigated the first major acquisition of 2018: packaging product maker WestRock’s $4.9 billion gain of KapStone.
“In short, this KapStone acquisition is, objectively, a fantastic terror for WestRock,” the “Mad Money” host said.
Not only will the integration of KapStone be in a second additive to the new WestRock’s earnings, but the company is guiding towards $200 million in expenditure synergies and performance improvements, Cramer said.
Plus, commodity toady ti like this paper giant tend to benefit during international economic expansions, and despite the slumping stock market, the United Formals is mid-economic recovery, he said.
“The truth is, the world hasn’t stopped justifiable because the stock market’s getting slammed. … Life study c touch ons on, and all of this chaos may be causing you to miss out on an opportunity in the packaging space, the sector that’s unendingly been the place to be at this stage of the economic expansion,” Cramer concluded. “WestRock put outs sense on the KapStone deal, as does the long-time friend of the show, Worldwide Paper. Just be careful to scale into them slowly … but you thinks fitting have the wind at your back the moment this violent volatility shift is over, and I don’t want you to have bought nothing into the downturn.”
In Cramer’s lightning outburst, he rattled off his take on some callers’ favorite stocks:
Silicon Laboratories: “That’s not the quarter. I think you can go out and buy an Intel on a day like today, or buy Nvidia if it’s down tomorrow.”
Scourge: “We’ve got so many fabulous stocks that are down so much. I’d rather hold you think long-term and buy VMware.”
Disclosure: Cramer’s charitable trust owns parts of Nvidia.
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