Cramer's Mad Money - S&P Futures Are Controlling Everything (5/11/10)

Includes: DWDP, SPY
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 11.


Stocks might seem random right now, but the reality is the S&P futures are "controlling everything in the market right now." Cramer adapted and conflated two Shakespeare quotes to demonstrate his point; "The S&P play is the thing and all of the stocks are merely players."

Cramer consulted one of's technical analysts, Tim Collins, about the SPDR S&P 500 Trust ETF's (SPY) chart. Looking at the daily chart, Collins found three negative trends. First, trading volume has been higher in selloffs and lower in rallies. Second, the stock doesn't seem to have the strength to resist a downward trajectory. Third, the 14 day moving average has crossed over the 34 day moving average in a "bearish crossover'; the last time this happened was in January when stocks took "a few weeks of rest," recalled Cramer. However, this was followed by a "bullish crossover" in March.

SPY's weekly chart is "more constructive," and both Collins and Cramer concluded that SPY is in for a short-term decline to about $111, from where it will resurge and rise to $125. Cramer concludes that while SPY looks bearish for the short-term, he would use its coming decline as a buying opportunity.

Don't Mess with the IMF

Tuesday's action was like a roller coaster ride, although not quite as dramatic as last week's turbulence; the Dow fell 94 points in the morning, rose 94 points, then closed 37 points down. So which moves were "right"? Up or down?

Cramer thinks those who say the decline was the true story are basically saying the trillion dollar stimulus in Europe is not going to have any teeth. We "pulled back from a precipice" and yet not enough people believe Europe can solve its problems. Cramer reminded viewers that the IMF, which is involved in Europe's reforms, is "a grim reaper" of austerity and "is not going to be messed with."

Aside from Europe's woes, bears are concerned about a potential slowdown in China. However, since China has a middle class of 300 million and growing, Cramer doesn't see the Chinese government taking drastic austerity measures. The verdict: "Things are not perfect… they are not solved… but they are not nearly as dangerous as they were."

Accidental High-Yielder: DuPont (DD)

While a European collapse has been "taken off the table" with the $1 trillion bailout, Cramer says the markets are still treacherous given the volatile action lately and urged investors to get more defensive by finding accidental high-yielders. In spite of DuPont's (DD) upside surprise on April 27, with an 18 cent earnings beat, the stock got taken down by last week's general decline and hasn't peaked up since. DuPont is now an accidental high yielder with a dividend of 4.3%, and all of the divisions of this very diversified company are either "improving" or "totally on fire": sales of chemicals are up 32%, performance materials are up 62%, electronic communications, 73%, performance coatings, 23%. DuPont has raised the dividend 423 times since 1904. Cramer urged investors to reinvest dividends and discussed his law of 72: divide 72 by the percentage yield and that will indicate the number of years it takes to double your money if you reinvest the dividend.

Has the SEC Lost its Mandate?

Cramer had a go at the Securities and Exchange Commission:

They are trying to get some kind of coordinated response to a mechanized decline. I think it will end up being some weak circuit breaker that won’t amount to a hill of beans to protect you. What I think is outrageous is not just that the SEC is getting this wrong, it seems like to me that the whole organization has lost its mandate.

The SEC needs to return to the period between 1993-2001 when it was under the leadership of Arthur Levitt who was committed to the idea that the stock market should be safe for the little guy with his kids' college savings and his retirement riding on his investments. "He favored putting the retail investor over the institution," and never would have countenanced putting Goldman Sachs on trial for allegedly defrauding a "sophisticated" German bank. "Now if (Goldman had defrauded) widows and orphans, he would be hammering them," Cramer opined.

Dick Grasso, former head of the NYSE echoed this sentiment when he said in an interview that the SEC should be there for "the least sophisticated investors...not the most sophisticated investors."


Jim Cramer was up 31% in 2009. Click here now to trade alongside him.

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