January 16th, 2009

Cramer and IBB and CELG

Such condescension. Why can’t Cramer just understand that others aren’t necessarily wrong, they just might be a different opinion than his. Oh, I know why. It’s because he might then have to admit fallibility.

Take, for example, his latest Tech vs. Fundamental rap last night – this time about biotechs. Quoting from the recap on the MadMoney CNBC website (all emphasis are mine):

  • “one school of investing often sees what the other doesn’t”. Shouldn’t that be one school of investing often sees things differently than the other”?
  • According to Cramer, IBB (the biotech ETF) “is a sell, at least from a technician’s perspective. A look at the chart shows that IBB’s uptrend line is broken, meaning the ETF’s rate of ascent has changed. Put simply, the momentum’s gone because there are more sellers than buyers right now. When this happens in a group as beloved as the biotechs, it usually indicates that the good news is priced in and a decline is coming. So investors should get out.” ….. The uptrend line he talks about is so short-term that breaking it is meaningful only to daytraders. What about a longer perspective? That trendline is merely a squiggle in a long-term base going back to October that IBB is forming along with the market, other industry groups and individual stocks.
  • Cramer goes on to say that “On the fundamentals side, though, the explanation’s not so easy.” Implying that the technical perspective is simplistic and as simple as drawing a trendline or moving average – any trendline and any moving average – and buying or selling if the price moves above or below it. Cramer, you simpleton, IT’S NOT THAT SIMPLE.
  • Setting the stage for pumping the stock he has a vesting interest in, he says “the key is to select specific names from among the group.” He then touts his stock Celgene (CELG) on fundamental reasoning and sums up by saying “The charts say sell, but the fundamentals look good to Cramer. Especially CELG, he said, the best and cheapest in the group.”

No let me paint a different technical picture. First, because of the huge market shock that we suffered in 2008 and may still not you be recovering from it’s important to view all charts from a much longer perspective – perhaps all the way back to 200-03, the last time the market has been so beating up (see my various previous posts comparing the current bear market crash with the Tech Bubble Crash). When viewed through binoculars rather than microscope, IBB presents a much different picture:

The industry never regained its footing after the Tech Bubble Crash (similar to but less dire than the semiconductor industry – see the SMH etf). IBB has a very clear upper-boundary resistance trendline connecting 5 peak pivot points. Until the current market crash, the etf reflected down to a lower boundary support trendline (depicted as a dashed line) connecting 4 trough pivot points. The downdraft of the 2008 market crash caused the etf to break that lower trendline to rest on a potential new lower boundary support trendline that’s nearly perfectly parallel to the upper boundary (a common phenomena in upward channels, whether upward-, downward- or horizontal).

So forget Cramer’s broken uptrend trendline. All that can be said is that it’s attempting to form a base from which it will bounce off the bottom trendline along with the market’s recovery. If the market fails, then IBB will break through the support trendline and could fall to the low-40’s.

What about Cramer’s “favorite”, Celgene (CELG)? No question if you owned the stock since the Tech Bubble Crash bottom you owned a rocket that went up nearly 20-fold to 2007. Rather than collapsing during the 2008 Credit Crises Crash, it has also formed an upward sloping channel:

Will this 2007-08 price action turn into a reversal pattern or will it prove to be a continuation (consolidation) pattern. Cramer is confident (as he always is) he knows the answer and that this is a way station and the stock will continue its rocket ride as the market improves (or regardless of whether the market and economy improves or not).

But as an individual investor I could spend hours reading reports, listening to conference calls, hearing management at their annual meeting and I still wouldn’t know whether the share price growth will continue. I’m not even sure momentum will ever return in the same way. I’d rather wait to let others (buyers and sellers) fight it out and I’ll get on the bandwagon once it breaks out of this range.

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