There are a handful of stocks that can give investors early indications about what to expect of the market in coming weeks, CNBC’s Jim Cramer said Thursday.
As selling continues and major U.S. indexes take on a “bearish malaise,” the “Mad Money” host revealed a technique that he developed during his time at Goldman Sachs that helped him forecast which way the wind will blow.
“You need to have the prices and charts of just a half-dozen stocks that … give you the feel and they tell you the tale of the tape in this market because the action in these names will give you a sense of when the averages are ready to turn,” Cramer said. “We had a lot of positive action today, believe it or not, but it may not be there yet.”
Cramer went on to explain why FedEx, Micron, Workday, Goldman Sachs, CVS, and Facebook can give “a good read on the situation.”
The transports sector has been out of gas the past 10 trading days and investors are still suspicious that a recession is coming in due time. FedEx, the global shipping company that is connected to everything from supply chain to e-commerce to China, is a better signal about the industry than the index itself because it is “most emblematic of what’s happening right now on the market,” Cramer said.
The company, which has been unstable lately, will deliver its latest earnings report in two weeks. Cramer said investors may be concerned about weak results and weak guidance. If the stock goes down, the sellers would feel vindicated, he said.
“Before I would make a big commitment to this market I need to see FedEx reverse directions, which would signal that a slowdown is finally priced in and the market de-risked and ready for a swing,” he explained.
The host said he’s not looking at FedEx for a read on fundamentals but as a referendum on a looming recession. Cramer added he’s not too worried that the economy could fall into recession, thanks to Federal Reserve Chair Jerome Powell’s policy of patience.
“I think this decline in FedEx is based on the rearview mirror, when the Fed was still intent on strangling the life out of the economy,” he said. “But Powell saw the slowdown coming and he’s changed his tune. He’s with the good guys.”
Shares of Micron, which are down nearly 30 percent over the past year but up nearly 20 percent in 2019, closed north of $37 on Thursday. The chipmaker is anticipating the cycle to turn into a growth one, Cramer said.
The company has an earnings report coming out later this month. If the stock continues to drop, it will mean that sellers are expecting disappointing guidance, but a couple point rally could give the sector a boost, the host said.
“I can tell you it is vital that this stock to stop going down now. And at times it did trade higher and it finished down just 10 cents,” he said. “The semis are fabulous leaders because when they rally it’s a sign that global commerce is picking up as there’s a need for more chips than they’re already pumping out.”
Workday is another stock on the watch list. The finance software vendor’s fourth-quarter earnings beat expectations, but the stock price has been slumping and it hasn’t eased up.
“I wouldn’t trust any high roller until Workday bottoms and starts bouncing,” Cramer said. “Now the stock did spend a bit of time in the black, but it couldn’t stay there and ended off 68 cents. It needed to finish in the black.”
Cramer suggests following Goldman Sachs like a hawk. He said the stock, which reached $275 almost a year ago, has climbed out of the pits, bouncing under $152 in December, to levels that investors can take profits.
The host contends the equity and its erratic trading is a better indicator than that of JP Morgan Chase.
“You aren’t going to get a rally in the financials, a group that amounts to roughly 20 percent of the S&P, without Goldman pointing the way,” Cramer said. “Especially given the CEO, David Solomon, will soon be testifying in front of a hostile House committee led by bank nemesis Maxine Waters.”
Health care and its related stocks have been hurting and CVS, which includes Aetna, has been “abysmal,” Cramer said.
CEO Larry Merlo recently said 2019 will be “a year of transition,” delivered weaker-than-expected guidance, and the company’s shares sank in 11 of last 12 trading days.
And it doesn’t help that sellers don’t care about price, Cramer said.
“The sickness where sellers just reload and reload and reload and reload simply don’t even care about what price they get. That means your worst enemies here are often your price-insensitive fellow shareholders — anyone who doesn’t care about price can destroy a stock when they decide to dump it,” he said. “So don’t touch health care until you see two up days in CVS.”
Facebook used to lead the market as the company was on track to spend less and get higher margins. That was until CEO Mark Zuckerberg revealed his new privacy-focused vision for the social media giant that might not include advertising, Cramer said.
Investors are concerned this will stunt revenue growth more, he added.
“Unless Facebook can shrug off these newfound worries and sellers, the whole FANG cohort could be back in trouble,” Cramer said.
Disclosure: Cramer’s charitable trust owns shares of Facebook, CVS, and Goldman Sachs.
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