July 13th, 2007

Cramer’s 80 to 120 Rule: BA, CAT, COP, APA, APD, ENR

I must confess, I watch Jim Cramer just about every night. “Confess” because I find so much he talks about as plain b-s, if not untrue or even misguiding. So I couldn’t believe my ears when I heard him launch on this $80 to $120 series. I finally got around to recording on Wednesday, July 11, and hear is his nod to momentum trading:

“Stocks that make it to $80 in a bull market, will usually get to $100 and stocks that make it to $100 tend to go to $120. This is my rule of thumb for making the simple money right now.

I only endorse this rule for stocks in the S&P 500 because those are the ones with the most downside protection, those are ones that in the last year haven’t slipped back after they’ve broken the 100 barrier.

Stocks that make it up to 80 …… are stocks with serious backing from institutional buyers on Wall Street. Stocks that are 80 have made the big boys lots of money and for that reason the Street is pretty confident they’ll go higher. The way Wall Street works, if enough people think a stock should go higher, it usually will because they buy the stock hand over fist. Once a stock is in range of $100, or par, which is what you have to call it on Wall Street or you’ll get smacked around, it becomes an anointed name.

The big money keeps rolling in because the companies build up a lot of confidence in the stocks ability to go higher and then, as more people buy, the momentum continues. Now I know it sounds silly, ridiculous, it should never work, but it does. Cramer should be tarred and feathered for even bringing up this $80 to $120 strategy, he should be castigated for being a total clown for recommending it. I would burn Cramer in effigy. In a perfect work I’d be ashamed to talk about this but it can make you money. I mean who cares how dumb the idea sounds! Now it might sound completely foolish but it could make you some money.”

By last night, he had included the following on his list (to see charts, click on the symbols):

  • Boeing (BA) – I recommended BA back on August 26, 2006 (!) when the stock was 75. It’s performed exactly by the book and is now 100. If I had been writing here in early 2003, I probably would have recommended it then because it was bouncing off a very long-term support trendline.
  • Catepillar (CAT) – This isn’t the first time Jim recommended CAT. In fact, I wrote on February 23, 2006 when he correctly called CAT and other earth moving equipment as buys. O.K., he got it back then but it wasn’t because of his stupid rule …. there’s no such thing. It’s actually momentum and seeing it early in the charts.
  • Conoco (COP) – I reaffirmed the Energy sector a buy in my March 23, 2007 posting when it was under 70; today it’s near 90. That was on charts.
  • Apache Oil (APA) – included with COP on March 23
  • Air Products (APD) – it’s instructive to study this chart because it says so much about looking at longer-term charts and riding the Life Cycle Growth Phase. It can be bumpy but, with patience, the rewards are huge.
  • Energizer (ENR) – was spun off in 2000 and falls into the category of an IPO (see my several postings on IPO’s, May 28, 2007 and May 30, 2007). Since then, I’ve concluded that once an IPO surpasses it’s IPO price by about 10%, momentum will carry the stock to significantly higher ground. The right time to get into ENR would have been in 2003 (along with any of the above) and momentum has catapulted the stock ever since. Jim, it’s not your stupid rule.

What I find amazing is that I could have used any of these stocks as evidence of merits, actually the truth, of Life Cycle Investing. It’s not so much a question of the foundation for Cramer’s totally arbitrary 80-100-120 rule fabrication. The rule just as easily could and probably should have been made as the 40-60-80 rule …. at least the % increases would have been twice as large. What I’m saying is that we need rules for getting earlier in the game, not later. And stock charting would have at least told us that when each of these stocks were developing into new life cycles, would have kept us in through their growth phases and patiently had us watched as they recently formed maturity consolidations and, rather than going into decline, seem to have been reborn again.

Again, to see what I’m describing, click on the symbols.

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