Thursday, January 31, 2008

Cramer on BloggingStocks: Huge money flood on a 50-point cut would lift stocks

From Blogging Stocks:
[30Jan08- ed.]'s Jim Cramer says if we're flat or down ahead of the right Fed action today, several sectors will take off.

Every rate cut matters now. We are in that zone where money in can overwhelm existing stocks and move them up simply because there hasn't been a lot of new supply -- ex banking preferreds -- and the buybacks kick in.

Let's take the homebuilders. As crazy as it was, the homebuilders bought a huge amount of stock back, and the supply is unusually low. That means you get exaggerated moves as that money comes in from the sidelines.

Same with stocks like Whirlpool (NYSE: WHR) (Cramer's Take) or Black & Decker (NYSE: BDK) (Cramer's Take), where just a little bit of buying seems to move the stocks absurdly.

I think much of this is a function of money not getting a good return on the sidelines, and we see that the shrunken floats actually work.

There are tons of companies that have bought back stock in the last two years, and frankly, it didn't matter because money's been coming out of the stock market for years; the Fed's actions should be and are reversing that flow. (So many good things happen with low rates that the media never talks about.)

That's why I am inclined to buy any weakness we get today off a 50-basis-point cut, although I think the market could RIP on a down 50 if we are unchanged or down ahead of the meeting announcement. It is amazing, though, how lately we go right to the brink up 100 points, making things much tougher. As a betting person, I expect that the futures' burst upward will most likely preclude buying, so you do have to pick some things up on potential weakness this morning....MORE

Our call was Fade the Fed Rally! . Then, 34 minutes later, Positions Covered?,.
It takes a difference of opinion to make a horse race*.

*Differences of Opinion Make a Horse Race

A model of trading in speculative markets is developed based on differences of opinion among traders. Our purpose is to explain some of the empirical regularities that have been documented concerning the relationship between volume and price and the time-series properties of price and volume. We assume that traders share common prior beliefs and receive common information but differ in the way in which they interpret this information. Some results are that absolute price changes and volume are positively correlated, consecutive price changes exhibit negative serial correlation, and volume is positively autocorrelated. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.