If you haven’t heard that Jim Cramer’s a fade, I can only presume you’ve been living under a rock
Every time he says, well, pretty much anything, social media feeds fill up with people REALLY excited about fading his view…
Errrrrmahgeeeerd he’s always wrong!!!
RIP stock market!!! LOLZ ROFL LMAO
Something like that.
And sometimes, he’s so perfectly wrong that it’s comical.
Check out this gem 👇
🤑 AT&T is up 76% since Jim Cramer said:
“Walk away from it. That company is as poorly managed as any company I’ve ever seen in my lifetime”
(25th July 2023)
AT&T $T just announced plans for $40bn of buybacks & dividends
+5.3% today pic.twitter.com/yMaeYF5hIg
— Axi (@axi_official) December 3, 2024
Right at the lows!
So, should we just blindly fade everything Cramer says?
Obviously not!
If only it was this easy.
The guy’s a literal firehose of bullshit.
Unless you want to be your brokers dream client, you can’t fade everything he says!
However, if you can filter out the real nuggets, he can occasionally be a useful contra.
What we’re generally looking for are capitulation type statements as guideposts for sentiment exhaustion, especially for stocks that have been BATTERED.
AT&T was a great example:
“Walk away from it. That company is as poorly managed as any company I’ve ever seen in my lifetime”
A week earlier, this was the Reuters headline:
The article included FANTASTIC quotes like this one:
AT&T faces unquantifiable financial risks that would create a “long term overhang” for the stock since the company probably has a significant exposure to the toxic lead cables with its network reaching about 40% of homes in the U.S., Citi analysts, led by Michael Rollins, said in an investor note
Basically, it’s ‘uninvestable’ – imagine taking risks when you can’t quantify them!
Could never be me 😇
Hopefully you’re getting the idea here.
These are all the kinds of things you’ll see IN COMBINATION when sentiment hits rock bottom.
And I’m not just saying this with the benefit of hindsight.
Not saying we should blindly fade Cramer all of the time but take a look at the weekly chart of AT&T and tell me we haven’t priced in a lot of bad news already… Me, in the Fink discord when Cramer hit the wires
There’s a repeating sentiment pattern when stocks fall a lot.
The first thing we notice is this kind of capitulation language.
That doesn’t mean we immediately pile in on the other side.
Well, if you’re more passive, maybe you do.
Whack some in the portfolio and do nothing for a year is one approach you could take.
If you’re more active & appreciate that bottoming is a process, then this part’s for you.
Stage Two – Capital Efficacy & Opportunity Cost
Stage one is identifying the sentiment capitulation.
That there’s potential opportunity.
Now imagine you bought the Cramer comments.
You don’t know that the stock will rally 78% over the next 18 months.
In real time, you sit roughly at breakeven or in drawdown for the next month and a half.
Maddening.
September 14th, the stock gaps higher. You get your hopes up.
Finally this POS is gonna rally!
And it does.
For about a week.
Then it steadily falls again.
And continues to go nowhere for the best part of 3 months.
It would be entirely understandable if you threw in the towel during this time.
What makes it worse is there were a load of other stocks that rallied their proverbials off during this time.
There always are.
Which means your capital could have been more effectively deployed elsewhere.
The opportunity cost of holding AT&T during this time could be enormous.
We know with the benefit of hindsight that this dead zone was only 3 months but it could’ve been 6, 9, or even longer!
A More Effective Approach
You’re probably gonna hate this, because it’s so simple…
Wait for the catalyst.
Wait for momentum.
In this case we got two big clues around the 19th of October.
A gap higher on a very slight earnings beat.
And one of my favourite momentum setups…
Clustered moving averages with a short term crossover.
Two examples on this chart:
Note the green boxes. The moving averages converge and cluster together, then the green line (20 day) rises above the slower 50 & 100 day MA’s.
That’s a far better time to get involved.
The working assumption is that the low is in because sentiment is so bad, everyone’s capitulated, so we’re looking for signs of nascent momentum.
One other thing to note here is that the first setup yielded around 23% in about six months.
That’s fine, but once again, there may have been better setups elsewhere.
The second setup turned into a MUCH stronger trend.
Summing up, fade Cramer if you like. Especially in the right context.
But there’s no need to rush in & take the other side of his verbal diarrhoea.
Use watchlists, look for the setup and THEN ride the trains that are actually moving in the right direction.
The market will provide infinite opportunities.