Commodity Rally Is A Good Sign - Cramer's Mad Money (4/12/16)

by: SA Editor Mohit Manghnani


Technical analysis of tech stocks.

Steel has bounced back.

Starbucks downgrade is an opportunity.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Tuesday, April 12.

Oil crossed the $40 mark yet again on anticipation of the OPEC meeting. "That just might spell the end of the downward spiral in the group, something that could lift all boats, even if that idea seems counterintuitive," said Cramer. The commodity rally in the last few days has led many to believe that Asia is doing better. Since then, oil production has fallen very little and people believe that the demand has picked up. "I believe that oil use is indeed up in the People's Republic, and that has been an important part of the move," said Cramer.

For automated trading platforms, a rise in commodities means buy stocks. That's how Caterpillar (NYSE:CAT), Cummins (NYSE:CMI) and Honeywell (NYSE:HON) rallied on Tuesday. With improved demand and very little decline in supply, oil is unlikely to go to the $20s and hence investors have started buying stocks again. Chesapeake Energy (NYSE:CHK) rallied 34% as the company become viable from insolvent almost overnight.

When commodities were falling, stocks like Freeport-McMoRan (NYSE:FCX) had bankruptcy fears due to which many industrial stocks went into freefall. With commodities moving up again, things are much more stable. In the past two months, oil stocks have gone from bankruptcy fears to stable. "Remember my thesis; it is the stocks that make me less gloomy than the average bear I see out there," added Cramer.

The IMF said that things around the world are getting weaker. If they are to be believed, then investors should buy consumer packaged stocks. Eventually, the situation looks good to Cramer. "It is not the end of the world as we know it, and the market wants to rally instead of collapsing," he concluded.

Off the charts

The internet stocks have started to rally and Cramer looked at the charts with the help of technician Suz Smith to find out where they stand.

Facebook (NASDAQ:FB) has tested its 50-day moving average. The froth has been removed and the stock is showing bullish signs. Cramer said he'd be a buyer of Facebook on weakness.

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is due to report next week and the stock has made a 'W' bullish bottom. Smith thinks the stock can go $800 per share. Cramer agreed with Smith's view and would buy some now and the remainder after the company reports. (NASDAQ:BIDU) is the king of search engines in China. The stock has started to consolidate since February lows. The stock is risky, but is showing a bullish uptrend according to Smith.

Expedia (NASDAQ:EXPE) also pulled back in March after February lows. The technical charts show that the stock is in oversold territory. The stock fell below its 52-week low which is worrisome to Cramer.

"I am attracted to them all, but the trust only owns Facebook and Alphabet, and I'll stick with those recommendations for the long-term, not short-term, capital appreciation," said Cramer.

Steel stocks

Steel, along with steel stocks, has been in a freefall for 18 months. Lately, steel stocks have bounced back with Nucor (NYSE:NUE) up 19%, and AK Steel (NYSE:AKS) and U.S. Steel (NYSE:X) up over 100% for the year. "One of the most amazing and rapid comebacks I have ever seen, and I have been around for a long time," said Cramer.

Till 2014, steel was at a multi-year high till it started falling due to weak demand from Brazil and China. The slowdown in China created lots of issues for the US. Not only was there was decrease in demand for steel, but the Chinese government propped up the steel producers with cheap loans and they keep churning out steel as if there is no tomorrow. This led to steel prices falling greatly and the US could not compete with prices.

The impact of such steel dumping was drastic for steel stocks. In February, the Obama administration attempted to stop the flood of cheap Chinese steel. Congress passed a new customs and trade enforcement bill, which gave the President authority to act against dumping of state subsidized goods. Import duties were added on steel imported from seven countries, including China.

"Call that protectionist if you want to, I say it is smart policy and one of the most pro-business things President Obama has done since taking office," said Cramer. "The Obama administration's new tariff on Chinese steel was an absolute game-changer that has effectively negated the No. 1 threat to the American steel industry. Throw in a new and improved economic landscape and I think these stocks have more room to run," he added.

In the steel space, Cramer advised buying high quality stocks like Nucor.

Starbucks (NASDAQ:SBUX)

Starbucks was downgraded on Tuesday which led to the stock falling 2.3%. Analysts mentioned that recent changes to the company's loyalty program could hamper the stock's short-term performance.

Cramer said that Starbucks is a company to be held for the long term. The company's expansion globally along with technological leadership will continue to deliver value for shareholders in the long term.

No analyst suggested that the stock should be sold. Starbucks may look expensive for the short term, but considering its performance and consistency, the downgrade is an opportunity for investors to buy.

Viewer calls taken by Cramer

TJX Companies (NYSE:TJX): It's one of the best in the group. Buy some at $76 and some more if it goes down.

First Niagara Bank (NASDAQ:FNFG): Hold it. The bank stocks are on their own trajectory.

Alaska Air (NYSE:ALK): They have a good balance sheet. Cramer advised waiting for the stock to come down.


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