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tv   Mad Money  CNBC  May 10, 2012 11:00pm-12:00am EDT

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so you can kill invading weeds down to the root. without harming your lawn. guaranteed. ortho weed b gon max. i'm jim cramer. and welcome to my world. >> you need to get in the game! firms are going to go out of business and he's nuts! they're nuts! they know nothing! i always like to say there's a bull market somewhere, and i promise to try to -- "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm just trying to save you some money. my job is not just to entertain you but to educate you, so call me at 1-800-743-cnbc. oh, boy, is it ever easy to focus on what's wrong? even on a day where the dow actually rallied nearly 20 points, the s&p gained .25%, although the nasdaq did decline .04%. europe, it's in total disarray with greece giving up the ghost and spain grappling with its
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failing banks in a way that will cause intense pain. no gain. we have china importing less. that economy is clearly slowing. >> the house of pain. >> the growth engine that was latin america, oh boy, has it ever stalled. in part because some countries there are starting to expropriate private property. it's reminiscent of chile in the 1970s. commodities, they can't rally. and without them, many of the global industrials going strong are just being crushed with every european or chinese hiccup. these companies had been the mainstay of our stock market since the bottom in 2009. now they cannot be counted on to make you money. worst of all, we found out this morning that tech spending has hit a massive wall. as cisco, the huge networking company went out of its way on its conference call to say the customers are pulling in their horns worldwide, orders slowed down, and not cisco's execution,
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which actually was excellent, hit every technology stock. today, cisco delivered a knockout blow to that leadership. it's nonstop debacle. but you don't need me to brief you on the negatives. everyone else takes care of that. they do a fabulous job of pointing them out on an hourly basis. and every website, every paper i pick up. i want to take a different tack. tonight i want to go over the best area out there. the non-debacle part of this economy. to show you who's still doing well. yep, i want to point out the most positive sector right now because when the market's this oversold, you have this high level of negativity, the possibility of owning stocks with good fundamentals just becomes too great to pass up. there are too many companies doing well to toss up our hands. even if europe continues to damage the global economy, and it will, people, it will. what's the real leadership in this market? don't laugh. it's the domestic housing market.
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that's right, if a stock is involved with housing, chances are it's been or will be going higher. where do we start? how about with toll brothers? did you know toll is up 31% this year? how about lennar, horton, they've still got room to run. these are national home builders putting up phenomenal sales and earnings numbers. do you understand the implications of this move? don't let yourself to be too blinded by spain. or the international banks as terrible as they are. housing let us down in 2007. it's since shrunk as a part of the u.s. economy and we built a lower number of homes now, but when these home-building stocks hit repeated highs, that tells me things are changing. these stocks rolled over well in advance of the housing crash, now they're soaring well in advance of what i believe will be the housing recovery. two million homes a year, that
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was unsustainable. i don't think we're returning to the era when the value of your home would climb faster than any other asset. that was speculation fueled by easy money and rapid integration. now we've gotten down to where we're building fewer houses than are actually being destroyed each year by fire and flood and other causes. we're building the same number of homes when our country's population was half the size it is now. and judging by the surveys we've been getting, housing prices have stopped going down in many areas around the country. the hardest hit regions are well off their lows. so let's go over what actually happens when you build and then buy a house. first, home builders have to buy wood, appliances, dry wall, roofing, plumbing, electric products. these companies are beginning to recover across the board, but they could go up for a long time before they ever get anywhere near back to where they were before the housing bubble crashed. the other day, louisiana pacific, the lumber company, reported its first good quarter in ages. weyerhaeuser is doing fine too,
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more exciting might be the dry wall industry. combination of a drastic decline in chinese wall board because of safety issues has led to a renaissance in sheetrock which is a registered trademark of usg. a lot of people given up on masco. another kitchen and bath play that's just a point off the 52-week high. we've seen sherwin williams soar, but dupont is lagging and they've got paint and insulation, so does owens corning. all these seem cheap to me. the international banks trade with spain, and after jpmorgan's fiasco, my charitable trust owns this stock, this evening, i understand why you don't want to touch them, okay? i understand that. but the domestic players are going down too tomorrow. i want you to think of wells fargo and u.s. bancorp, which my charitable trust owns. they reported fine quarters and they're not doing this crazy stuff. they're not over there in europe taking big risks. if fannie mae is turning a profit, it's the worst of all
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housing-related companies, almost designed to lose money, some say it is. well, anything good can happen in housing. you also need insurance, and that's one of the reasons travelers has been hitting new highs, but it remains incredibly cheap. the cheapest in the group, perhaps. well, there are some others, let's just say what's cheapest financial in the dow. of course you need a nice lawn and garden, too. how about scott's miracle grow. last night ceo jim hagedorn came on the show. he explained the expectations got too high for the company and that's why it got killed. now i think they're too low given that may's been incredibly strong so far for the most trusted name in the lawn and garden business, although this weekend will be the biggest of the year. you need furniture and that's ethan allen. but don't forget the ancillary plays either because they do matter. you still like to have a phone line and cable installed when you buy a new house. time warner which owns hbo is cheap. so are as i never tire of saying verizon and at&t which suffered mightily from the housing downturn with earnings
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shortfalls being hidden by wireless. who knows how high they can fly? and they are the biggest capitalized companies in the dow that don't have exposure to ailing worldwide markets like europe. they are go-to names in any selloff. and if housing gets better, it's not too much of a stretch to focus on retail. you still run to macy's for household goods and tjx's home goods, and costco, a personal favorite, i shop there endlessly, but i've learned a lot from carl quintanilla's special about costco that airs again tonight. and last night's dividend boost from costco. europe can't pull that one down. home depot has done a wonderful job, but who knows how well it can do if home building never comes back. they have had nothing but head winds, now they might have a tail wind. i'm not whistling past the european graveyard or the emerging markets or the technology fiascos, but the
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bottom line, housing's coming back and taking a ton of sectors with it. plus, housing is as domestic as it comes. the moves have been big, but we're still in the early innings of a nationwide housing recovery. they may have too many homes in spain, portugal, and ireland. but here, we just aren't building enough of them. let's go to dan in wisconsin, please. dan? >> big boo-yah to ya, cramer. >> well, thank you, dan, what's going on out there? >> just checking out the company, they've been losing money. last month they cut about 10,000 jobs, today they lose another $5.7 billion. where's the future of this company? >> you know, look, everyone wants to call the bottom on sony. they've wanted to do it for 15 straight points. i look at sony and i think nokia. okay. nokia is a company that was powerful and everybody loved it and look where it is now. i don't want you to go anywhere near sony. let's go to bruce in new jersey. bruce? >> caller: hi, jim, how are you, sir? >> real good.
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how about you? >> caller: fine, thank you. the other day when emcr took its nose dive because of what's happening with the board. >> yes. >> caller: i jumped in when it went from 50 down into the 20s, i was thinking was it a good move? >> no, no -- go to and read herb greenberg, type his name in, his excellent piece about why it's no longer a growth stock. that's a dangerous stock even down here, given how much it's gone up. i don't want you in green mountain coffee roasters. i want you to be in dunkin donuts or starbucks. >> coming to you this afternoon from the heart of texas. how are you, man? >> wish i were there. it's just been miserable here. what's up? >> hey, ford, got a company -- and i realize that europe is a dark cloud over that, but we've got a company they're having to add shifts, hiring people right and left for demand for their product, they're profitable. got an incredible ceo.
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if the stock just keeps drifting lower and lower. and i still go back to this thing that they're having to add people on the shifts, having to hire people, having to expand production, but the stock is still dropping. >> doesn't matter, nick. because europe is that bad and don't forget they have a sizable business in latin america and latin america has turned really bad. so two out of three is not good. and that's enough to defeat all that good news in america. i said dunkin donuts, i should have said dunkin brands. >> housing is coming back and it's going to take the whole market with it. well, at least the part of the market that's the domestic market. otherwise, international, tech, you've got to be really careful out there. "mad money" will be right back. coming up, profit with a purpose? biotech is fighting chronic diseases and addictions with breakthrough treatments. could its stock be your best medicine? cramer's exclusive with the company's ceo is just ahead. and later, hospitality pays, feel like you're at the mercy of
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a volatile market? jim is revealing the secret sauce to beat the turbulent tape. tonight he clues you into a stock that could take your portfolio to the clouds. plus, fear factor. the dow snapped its six-day losing streak today. but is it time to sound the all clear? or could we be set up for an even bigger woosh down? cramer's going off the charts to find out all coming up on "mad money." miss out on some "mad money"? get your "mad money" text alert today. text mm to 26221 to get cramer right on your phone. for more info, visit or give us a call at 1-800-743-cnbc. ♪
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when the market gets difficult as it's been since april 2nd, you need to do everything you can to make sure you are able to stay in the game. i tell you to be logical, not let your fearful emotions rule your decision making. but i also know that's a tall order.
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we like to fight fire with fire. the antidote to fear is greed, not too much. just enough to keep you enthused about investing. and that's the reason why i'm always telling you to consider younger companies with big ideas. they can deliver huge returns, although they have downside risks and there's perhaps no better place to find these companies than biotech. companies like alkermes, alks, unique niche in the drug business. these guys use technology to approve existing drugs and make them less burdensome for patients to take. in january, the fda finally approved biduria, a diabetes drug that can be injected once a week that alkermes developed in partnership. that's a big improvement from the drug that it was based on, which had to be injected twice a day. the company now has five drugs on the market and next year they expect to see double-digit revenue growth, although there won't be any earnings to speak of until 2014, which is why you have to regard it as speculative.
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alkermes has a hefty pipeline, that's what matters where the company keeps developing better drugs in areas they know well. this company's the opposite of the big old line pharma companies that seem to have hit the wall or fallen off the cliff, the patent cliff that is. let's talk to the chairman and ceo of alkermes to learn more about his company and what's happening with the fda. welcome back to "mad money." thank you for coming on the show. richard, this morning we read in the paper that pfizer has to give up on this idea that it could make lipitor, that they could continue to have big sales for it. we read about this over and over again, these big pharma companies with all of these great drugs when they were younger and now they've all come to go generic and they're just these companies aren't that great anymore to own for growth. your company's set up very differently. >> correct. in many ways it's fantastic for patients. liptor, great medicine, now essentially it's free for people around the world. >> right. >> so the innovation they paid for now becomes part of medicine available for everybody.
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we're on the front-end of the curve. we're admitting new medicines that will add as much value as a lipitor would've a decade ago. >> now we're seeing human genome, suddenly like glaxo which i've recommended, they've had to resort to a hostile takeover to get new drugs. >> this is not an unusual story. all the big pharma companies are big, they have huge revenue bases and they're losing big products. so they have to go out and get more products. their labs are only a certain amount of productivity they can expect. but there's so much excitement out in biotech, it's a good place to go hunting. >> we know that the fda costs a fortune to develop a new drug. maybe only those kinds of companies have the financial wherewithal. how can companies like alkermes compete? >> there's a sweet spot for companies about our size. you don't want to be so small where you don't have enough money, people, and experience to develop drugs, but if you get too big, you're bureaucratic and
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slow and risk-averse. so a company about our size, $2.5 billion market cap, we've done this before, know how to make medicines and know how to get them approved and manufacture them. we think we're in the right position to do it again. >> you've got a couple of franchises you've really staked out. one talking about diabetes, but there's another monsterly sized market, unfortunately for emotional, mental. and you've got some schizophrenic drugs in the pipe. you've got antiopiate drugs. these are huge markets but require a lot of education. people don't even seem to know that vivitrol might be the way to go against some of the addiction. right? they don't know. is that because you don't have the billions of dollars to advertise every minute? >> in part. >> it is? >> if you're a pioneer, there's nobody else around you. there's not a pattern people can recognize. when you come up with a brand new medicine for a new patient population, it's really up to us and our evangelical capabilities and our smarts to be able to go educate doctors about this. >> there's no vivitrol clinics
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but there are methadone clinics. >> there are. >> when will there be vivitrol clinics? >> stay tuned. >> alcohol addiction is legal, so you don't end up in prison. is it one of these because it is legal, people don't seem to realize there should be an actual dollar a pill prescription that can try to get rid of it? >> most physicians treat alcohol dependence in this country don't use medicine. they use counseling. >> right. >> whereas with opiate dependence, they use medicine because these patients are usually in some type of legal or other crisis. you can be an alcoholic for many, many years of your life and never break the law or want to get better. >> you offer a solution. the fda, people think it's backed up, it's got too much to do. i know it regulates a giant part of the economy. why is this organization somewhat akin to the sec? why doesn't the fda -- given how powerful they really are, tens of thousands of people working
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for it to try to approve as many drugs as possible that we need? >> it's perplexing because it's such an important agency for all of our health, not just drugs, but foods, drugs, cosmetics, everything. yet, we are in the process of passing the fifth user fee agreement. when we submit a new drug for fda to review, we write a very large check to the government. so they have the resources to review this drug to get it to patients on time. >> that's how it works. you think congress would allocate it because we want to be the world leader in drug development. one last question, next big thing in the pipeline that we should be looking for that i can expect you to come on the show if you get approval. anything? >> we have our own long-acting medicine for schizophrenia that goes under the code name of alk 9070. it's in phase three clinical trials, which is the last stage, and it's an important drug for patients with schizophrenia. >> we'll see whether that gets approved. this is the kind of speculative
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young company that i know can go down a lot, but it has a big pipeline. and so therefore you'll want to buy it when it gets hit. stay with cramer. coming up, hospitality pays? feel like you're at the mercy of a volatile market? jim's revealing the secret sauce that could help you beat the turbulent tape. tonight he clues you into a stock that could take your portfolio to the clouds.
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♪ in a market that once again feels like it's been taken hostage by europe, we can't forget that individual stock picking when done correctly is still the single best way to try to make money. and i've stressed over and over again going back more than seven years, the beginning of the show, it's possible for you to be a better stock picker than the professionals. i know many people, maybe even most, believe the game is rigged against you, that it's impossible to ever get an edge on the pros, that by investing in stocks, you're just letting more sophisticated players pick your pocket. others including a guest on our own "squawk box" this morning think you're too stupid to buy your own stocks and need to settle for index funds. but you can beat them. and tonight i'm going to prove it to you. how do you get an edge on people who manage money for a living picking stocks every day of the week?
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by analyzing the squishy ethereal factors that can't be captured by the numbers in the spread sheets, and using it to identify winners. we know this works. why? because it's been done. a little more than three years ago, back on february 2nd of 2009, right at the very depths of the great recession, danny meyer, not a stock analyst, danny meyer, the famous restauranteur and author of "setting the table" came on the show with a bold theory. he believed the companies that mastered the art of hospitality would make you more money than their competitors that lacked what he called the hospitality quotient. first i was skeptical. i believed there was a subjective side to investing, but this hospitality idea sounded way too nebulous for me. he explained hospitality wasn't just something you get when you go to your grandparents' for thanksgiving. it's a business principle. it's about connecting with your customers, knowing how to make
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them feel good, giving them not just a high-quality product, also a high-quality experience to make them keep wanting to come back for more. we created the danny meyer hospitality index. it's made up of 17 companies that he believes embodied this hospitality factor, companies like whole foods, chipotle, apple, costco, amazon, goldman sachs just to name a few. the result, back when we first talked to danny about this idea, the hospitality index stood at 65. now it's at 232. that means while the s&p gave you a 65% return, the hospitality index is up a -- drum roll please. spectacular 257% over the same period. there's some comparisons, huh? look at that. that can't be random. it can't be idle, it can't be foolish. i very quickly became a convert
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to danny's philosophy years ago. i still found this to be incredible. danny meyer's not a stock guy. he's not a professional investor. his picks left the averages in the dust. what's he doing? he's using his insight as a restaurant operator to create a prism for identifying great stocks and that prism works. maybe hospitality isn't as ethereal as it sounds. fact is of the 17 companies in the original index, only one, just one underperformed the s&p and that was dreamworks, dwa, the other 16 left the averages in the dust. really amazing, isn't it? the second worst performer, southwest airlines, gave you 120% gain, the only airline i should ever recommend, i guess. whole foods has been the best performer, up 867%. and remember, he recommended this in the depths of recession when people said who's going to go there? it's too expensive. chipotle up 847%.
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apple third. give you a better sense of what that means, if you invested $5,000 in whole foods when danny came here and we created this index, $5,000 goes to $48,350. "squawk box" guest who says you can't beat the index funds, well, i think you can. it's amazing how these companies have prevailed and thrived in tough times. particularly by being managed better and thinking about these ethereal issues in business terms. let's go through the index. for the group like costco and bed bath, hospitality is all about creating a treasure hunt-like experience that keeps shoppers coming back for more, something carl quintanilla explored in the costco documentary on tonight. it's also about putting your customers and your employees first, before shareholders even, because in the long-term, that builds a beloved brand which only creates more value for shareholders. and costco is the master of understanding this virtuous
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cycle. amazon is online and also highlights the value of convenience, making it as easy as possible to get what they want. hospitality, same goes with google, ebay, then you have a retailer like men's warehouse, taking share from mom and pop stores by giving customers better prices. i mean, when he came on he mentioned men's warehouse, i was like, are you killing me? it's killing everybody. nordstrom, the only department store on the list, has always been a master of hospitality. lately they've made a substantial investment to the website making it an easier place to shop. maybe it's a place you should run to and not go away from. how about whole foods and chipotle? these are both very similar in that they're healthy eating plays that have built up a huge cache of trust with people who want natural and organic foods. when you shop at whole foods, you're not putting anything harmful in your body. that's the point of the good housekeeping seal of approval. chipotle especially makes its customers feel like it's on
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their side via the food with integrity program. all about finding better, healthier, and more environmentally friendly ingredients. do i need to explain it all? apple, greatest manufacturer of our era, greatest retailer, gorgeous game-changing products, beautiful stores, then there's brown foreman, the liquor company responsible for jack daniels, a terrific sense of what customers want and continues to invest aggressively in its brands while expanding overseas. mattel. i don't know, not that good lately, but an iconic toy company moving beyond traditional toys into entertainment, publishign and the web creating new ways for consumers to interact with the brand. american express, best customer service of any credit card company along with powerful fraud prevention products which are a couple of reasons my charitable trust owns it. goldman sachs, danny believes is the best of breed investment
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bank and the muppet comments aside, remember the controversial op-ed page in the "new york times," it's usually in the business of putting clients first. and i think it does. when i worked there, i always heard the client, the client, the client is right, right, right. timberland, got taken over by vf corp., made you a bundle. dreamworks, the sole underperformer in the group. danny suggested we remove dreamworks and replace it with cramer fave the software is a service company that practically invented cloud computing. as danny said, it's all about helping other companies interact with their customers more effectively. it's been having a ton of success posting terrific numbers. think oracle there which is a stock i think you should sell. the ceo marc benioff, the danny meyer of the cloud business has instilled throughout the organization. not that anyone cares right now in light of cisco's blow-up that took salesforce down $16 with it. some worries about the quarter. if you like danny's analysis, it might be time to maybe snap up a little tomorrow into some weakness and after reports, buy some then. bottom line, when you're picking
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stocks, remember the success of the danny meyer hospitality index. understands the value of hospitality of not just delivering high-quality products but connecting with you the customer. that would make you more money than their clueless rivals. maybe in addition to incredibly successful shake shack restaurants, danny meyer should open up some stock shacks too. let's go to jim in wisconsin, please. jim? >> caller: boo-yah, jim, from kenosha, wisconsin. first-time caller, long-time fan. >> nice, what's up? >> caller: well, my question is about las vegas sands. >> yeah. >> caller: beat the street by 12 cents, a great outlook with huge growth in macao, but the last six days they dropped about $10 a share, what do you think? >> i like las vegas sands. all the casino companies have been under a lot of pressure because wynn had horrendous vegas numbers. people are worried about china. it's one of those terrific companies that will keep getting hit as long as there's worries
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about international weakness. i like las vegas sands, i'm a buyer, not a seller. let's go to tyrique in illinois. >> caller: boo-yah from chi-town. >> what's up? >> caller: a great internet stock, akamai. they had a blowout quarter and boosted their revenue guidance, but this quarter, light on the top line, but they're strong in the cloud and internet. >> think about it. look at cisco, strong in the cloud and internet and they had a negative forecast. so anyone who is strong in the cloud and internet is going to get hit because cisco's a trusted name and the cios in this country -- all the technology guys in this country do enterprise spending, they trust chambers and they trust cisco. that made everybody nervous, including people who may own akamai stock. not just about the quality of product, not just about the customer service, which is small. it's about creating a whole new ethos of hospitality.
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danny meyer understands it. it's a great way for the individual to pick them. stay with cramer. coming up -- the clock is ticking. call cramer at 1-800-743-cnbc to find out how to fire away at cramer on the "lightning round." can he withstand your onslaught of stocks? plus, fear factor. the dow snapped its six-day losing streak today. is it time to sound the all clear? or could we be set up for an even bigger whoosh down? cramer's going off the charts to find out, all coming up on "mad money."
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it is time -- it is time for the "lightning round" on cramer's "mad money." rapid-fire calls, you say the name of the stock i tell you whether to buy or sell. play until this sound and then the "lightning round" is over. let's start with john in nevada. john? >> caller: maestro cramer, thanks for sticking up for the little guy.
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my stock is hewlett-packard. >> i don't like that stock at all. i haven't liked it for a long time. let's go to heath in colorado. heath? >> caller: jim, a big boo-yah here from the mile-high city. how are you doing? >> real good. how about you? >> caller: doing great today. thank you. had a question about pan-american silver corp. >> well, it's the best house in a shaky neighborhood. i do not want to own any of these miners. i said that over and over. we learned our lesson from agnico and gold corp. let's go to richard in florida. >> caller: boo-yah. >> boo-yah. >> caller: nice to have your wisdom with the smart investor. >> thank you. >> caller: i wanted to know about the recent acquisition, what you thought about it. >> i know, to me this is a dicey stock, but as long as you regard it as a speculative, someone was killing me on twitter about how magnum hunter. and i said magnum hunter, again is like hero, hercules.
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these are stocks where you're rolling the dice betting on oil going higher. that's what they are, long-term calls on oil. let's go to peter in new york. peter? >> caller: hey, jim, big boo-yah from new york. how's it going? >> real good. how about you? >> caller: good, good. i'm a long time subscriber, read all your books, follow you on twitter and think you're great. >> thank you. >> caller: my stock is prudential. it's been hit hard lately, my buddy and your good friend doug kass has been buying it and i was wondering what you were thinking. >> i think if it gets hit tomorrow off the jpmorgan disappointment, that may be an opportunity. but they don't have that yield protection. without that yield protection, i get very nervous. it's only 2.8%. you need about 4% to be protected in this market with yields and jp morgan should be yielding 3.75, that's not going to stop it either. i do like it more than i did, obviously, at 60 when we sold it.
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john in california. >> caller: a big southern california boo-yah, jim. >> what's going on? >> caller: what about zip car. seems it's lost the zip lately. i think it's solid. >> the stock is down 25%. we were trying to analyze zipcar versus some of the other rental cars. it's one of the ipos that came during a great time. might want to look at it in the mid six, seven, eight, nine i think would be a better price. richard in michigan? >> caller: wolverine boo-yah, cramer. >> go wolverines, what's up? >> caller: i'd like to get your input on chkr, chesapeake granite wash. >> yesterday when goldman sachs went from conviction buy to buy on another chesapeake property, i said be careful about the overhang. chesapeake bay needs to sell stocks. i think the same thing applies to chkr. i don't want to own it right now, i think you can buy it lower. ray in florida, ray? >> caller: god bless you, jim. >> thank you. >> caller: i'm a first-time caller. >> thank you. >> caller: and i'm interested in deere.
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i know the earnings are coming up next week. >> it's a good company, but i have been talking endlessly on the show how the commodity markets are weak, they're levered to grains, grains are going lower, i want to be very careful. i want to be very careful. and that, ladies and gentlemen, is the conclusion of the "lightning round." >> the "lightning round" is sponsored by td ameritrade.
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for months, the right strategy in this market has been to buy the dips. time after time stocks bounce back with a vengeance, but sometimes it took longer than others. with the selloff over the last two weeks, china slowing, and europe falling apart at the seams, cisco blowing up, jpmorgan blowing up. got to wonder if time has come to get more cautious. it'd be crazy not to be worried after what jamie dimon said tonight. worried that the recent pullback
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might be a prelude to a sharper move lower. that's why tonight we're going off the charts with the help of tim collins, a brilliant technician, my colleague at to get some insight into how afraid we should be. collins has seen warning signs in uncomfortable places. the s&p's already making lower lows and lower highs, that's a classic red flag for chart watchers. but if you really want to know where we stand right now the best indicator to look at is the cboe market volatility index, better known as the vix. we don't talk about that much on the show, but we should. measures the amount of volatility expected in the s&p 500 over the next 30 days. volatility being code for going lower. vix has another name, though, and it's something we've talked about before. the fear index. it's a terrific proxy for the overall level of terror out there. when the vix is chugging along at a low level, that's a good sign, it means people aren't concerned there could be a huge selloff to occur. when the vix spikes and spikes
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higher, the investors are terrified. the last two weeks the vix has worked its way higher from 16 to 20. crucial level, represents the long-term average for pulling back to just under $19. now clearly fear is rising, but to get a real sense of what this means, collins thinks we need to take a longer term view looking at the vix's weekly chart and put it in the context of how we can make money or save money. what's this show us? at first glance collins says it looks innocuous. the breakouts almost always come in huge spikes higher. as you can see, these are big, right? and even though they have some follow through, by the time the spike happens, most of the move is done. think of these as moments where the level of fear shoots through the roof. the good news is, he doesn't think the spike in the vix will happen immediately. as in tomorrow or monday. the bad news, he sees multiple signs indicating a significant spike could potentially occur later this month.
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what are these clues? okay. technicians are always looking for patterns where history repeats itself or at least rhymes with something before it. they're like the propellerheads -- a little bit of history repeating, yeah, a '90s reference. in this chart, collins sees two different types of spikes in the vix. the blue boxes in the chart, they're horrible. the horrible spikes, moves that resulted in massive pullbacks where the market fell by more than 10%. the green boxes are the spikes that are nearly terrible. collins thinks we could be in for the latter because the vix current set-up looked like what happened when it spiked in early 2011. well, that was a precursor. what are the similarities? first, look down here at the relative strength, okay. the rsi directional momentum indicator that indicates the power of a given trend. right now the rsi for the vix is running in tight pattern, tight pattern, not really doing anything big, but staying just below the midline. okay?
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back in early 2011, did the same thing, staying under that line right up until when the vix spiked. that's why this current rsi reading suggests to collins that the vix could be poised to spike in the near future. you can see how it spikes. and that's what we're trying. we're trying to get ahead of this. next, check out the stochastics at the bottom. this is a different one. this is another momentum indicator that we talked about before that can often foreshadow when a security is about to change directions. before the spike in 2011, we got a bullish divergence in the stochastics. meaning this indicator began moving higher, okay, moving higher as the vix was going lower, interesting, huh? see right here still going down? the stochastics kept on rallying, running significantly higher until the vix finally spiked that march. again, collins now sees the exact same set-up, a bullish divergence that began in january followed by a strong run in stochastics followed by a rally
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in the vix which possibly could soon lead to the dreaded spike. same thing happens when you look at -- here's a new one, the cci, or commodity channel index. it's a different new technical tool that i'm introducing tonight. it's got nothing to do with commodities. this is an indicator that shows how when a stock is overbought or oversold and technicians use it to figure out when a trend could be about to change. back in early 2011, early 2011, the cci was an extremely oversold condition. and then it began moving higher even as the vix fell. once again, this was signaling a spike in the vix well before it happened. gave you a chance. just like the other two indicators, collins thinks what's happening with the cci now looks very, very similar, up to here now. it was extremely oversold at the beginning of the year, then it rallied as the vix went lower, and now it's rallying even harder. according to collins, any one of these clues by itself wouldn't be much cause for concern. when you put all these pieces
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together like a puzzle, a clearer picture emerges, and it's not a pretty one, which is something that after cisco and jpmorgan has me concerned. he's not certain we'll get a spike in the fear index, but there are enough warning signs out there that you've got to be on guard. collins thinks it could possibly shoot up to 32, wow, possibly 34, which would translate to a 5% or 6% pullback on top of what we've had since the market peaked in april. this is the vix daily chart. collins sees even more reason to be concerned here. the most glaring, why? it's the w-shaped bottom formation the fear index has made over the last two months. yeah. from a technical perspective, that's a very bullish pattern meaning the vix is going to spike and therefore a very bearish one for stocks. see the "w," trace that out again so you see it. the one positive, though, is this resistance line at about 21. that's created a ceiling over the vix going back to december.
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it seems that's been holding. it's possible it'll be propelled by the ceiling once again. but if it breaks out over that level, there's little standing in the way of a big spike higher. this is very concerning for me. that's why i chose to do it tonight on a thursday night. the bottom line, this tumultuous market where any european country's crisis can crush us, where cisco brought us down, jpmorgan's going to crush us tomorrow, we need to make use of every tool at our disposal to navigate our way to safety, not to mention profits. based on what tim collins sees in the vix charts, we need to stay cautious. while collins thinks we're safe for now, he also sees the potential for a nasty spike in fear that could cause a hideous selloff in the not too distant future. i say be careful and keep a crucial eye, keep an eye on this crucial indicator. this may be a sign of us having another big leg down. "mad money" will be back after the break. [ donovan ] i hit a wall.
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and i thought "i can't do this, it's just too hard." then there was a moment. when i decided to find a way to keep going. go for olympic gold and go to college too. [ male announcer ] every day we help students earn their bachelor's or master's degree for tomorrow's careers. this is your moment. let nothing stand in your way. devry university, proud to support the education of our u.s. olympic team.
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i come tonight to praise john chambers not to bury him. to criticize the ceo of cisco, the giant networking equipment company. i can see why, business has been decelerating while chambers and company continue to buy back stock. purchasing shares at $28.20 just this quarter alone.
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now it's $16.81. there's no denying that chambers put together a world class team with world class products offering an end to end solution for businesses, governments, you name it. what's going wrong with the outlook at cisco is a serious matter and one that is not cisco's fault. in fact, cisco's made tremendous strides to become a less bloated, more aggressive institution, offering a diverse product line much more than just telco service providers and the enterprise. the increase in gross margins tells me that. cisco is the dominant internet backbone company. it's quickly dominated the cloud, the financial companies, the tech needs and the needs of governments worldwide. it's got everything. and that's where the problem lies. cisco's everywhere. and with the exceptions of cloud and data center plays, these customers are very worried or cutting back and cutting back severely on their orders. cisco salespeople are amazing and they're the first to know of slowdowns and they're telling john of a real slowdown. he's gotten deeper into the organization to confirm that. the enterprise can't afford not to spend to keep up with the
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internet and data needs. the governments of the world, one of the amazing things cisco has done is to ingratiate in governments worldwide. no, cisco isn't offering solar solutions, ones that require subsidies, but it is providing services to ever larger, ever growing government needs when they aren't getting larger and aren't growing anymore. that's troubling, but not cisco's fault. it's difficult to say, though, because the showdown from the slowdown is new and the chaos around the world particularly in europe is too much for any worldwide tech company to continue to be as bullish as it was. it's not only europe. our federal government's ground to a halt and that's going to hurt too. there's no doubt that cisco is using this moment to vanquish the competition whether it be juniper, hewlett packard, alcatel, or whatever asian company you might be trying to get in the game at this moment. you can't blame cisco for this weakness. it's rare that i say this, but this time the fault isn't with the ceo, chambers. stick with cramer.
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really jarring night after the close. two terrific brand name companies. dow stock, jpmorgan, tremendous disappointment in the loss column on some derivative that i'm sure, well, let's just say they've lost control of.


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