Investors are discovering a plethora of the way to get returns within the present market surroundings, however too many good issues at one time can lead shares right into a susceptible second, CNBC’s Jim Cramer mentioned Monday.
“When lots and lots of things are working, you end up in a situation where investors take down tons of debt because everything seems [to] can’t miss and every move feels like a super-cycle,” the “Mad Money” host mentioned. “That’s when you get overextended and things go bad.”
The feedback come after the key averages, coming off the perfect week for shares since November, prolonged their beneficial properties to begin the brand new week of buying and selling.
The Dow Jones Industrial Average, surging about 237 factors, or 0.76%, closed at 31,385.76 to affix the S&P 500 and Nasdaq Composite indexes in document territory. The S&P 500 moved 0.74% greater to a document 3,915.59 and the Nasdaq accelerated practically 1% to a brand new closing excessive of 13,987.64.
Cramer identified seven themes driving the market greater that ultimately, he mentioned, could become “seven deadly sins.” To put together for that second, the smart factor for traders to do over the approaching months is to search for indicators that counsel the most recent uptrend can run out of steam, he mentioned.
“For now we’re in the clear, but you need to watch these seven themes like a hawk because eventually, they’ll turn ugly,” he mentioned. “Might take months, might take years. Either way, you don’t want to stick around” when it occurs.
Below are Cramer’s takeaways:
The reopening commerce is “hostage to the pandemic — we could get a load of new cases, especially this new South African strain [that’s] more resistant to the vaccines,” Cramer mentioned.
“As the economy improves and rates go higher, still a long way away, the housing bull market will get hurt. That’s inevitable. It could take years to become a problem, could take a year,” he mentioned.
“These stocks only work if employment picks up and business quickly snaps back,” the host mentioned. “If the recovery falters, they are insanely expensive on a price-to-earnings multiple basis.”
“It sure looks good now, but that’s because OPEC’s being disciplined,” he mentioned. “Eventually, prices will get high enough that the Saudis will stop limiting production and when that happens, oil producers will get hammered.”
“They’re great as long as rates kind of go higher, but not too high because that puts real pressure downward on loan demand,” Cramer mentioned, including that it is an “inevitable part of the business cycle.”
Individual inventory selecting
“There are only so many [stocks like] GameStops to go around that are primed for a short squeeze,” he mentioned. “Without better clearing systems, a lot of Merry Men could get hurt.”
“Many of these stocks are exciting and they all seem to have a mission, but in recent months we’ve seen more and more what I call celebrity SPACs and the entire thing feels extreme,” the host mentioned. “There will come a tipping point where we start getting glutted with low-quality SPACs and the whole group collapses under its own weight … [but] we’re not there yet.”