Understanding the Highflying Stocks

 | Oct 08, 2013 | 2:29 PM EDT
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They are cracking the squeezes. Always happens about this this time in the selloff. You begin to see how everything highflying trades together and sells off together. That's why Yelp (YELP), LinkedIn (LNKD), Netflix (NFLX), Amazon (AMZN) and Google (GOOG) can be clobbered all at once. Notice how Celgene (CELG), Regeneron (REGN), Biogen Idec (BIIB) and Gilead (GILD) are also being hammered.

That's just the way it is. These were shorted and shorted and shorted, and the stocks just kept going higher. At last they have broken the fever and are experiencing one of their regular paroxysms of pain.

I am reading on Twitter @Jimcramer right now about how I am killing people in these stocks. Let me be very clear about this: If you bought these stocks on me, you should have made a ton of money, unless you bought them two days ago, when I was definitely telling you that I was raising cash and that if you are buying now you are buying too early.

That's OK, I know the truth: Very few people on Twitter read me here. Some, but not many, watch "Mad Money." Most just read Twitter!

Blaming me for recommending about the best investment ideas I have ever had is fine with me. Be my guest. The main thing you need to know, though, is that after three to four straight days of this pain, you tend to get a bottom. That's when the short-sellers smell blood and go after these stocks that have been such horrendous shorts. That's when the longs who aren't nimble finally blow out these stocks. That's when the Johnny-come-latelies take a loss. Now we're only on day two of the selloff, so the idea of coming in and being a hero here has not been a good idea. It is just too early to buy.

Second, when you do go in, recognize that these stocks are coiled springs, but get the most bang for the buck by using deep-in-the-money calls.

Third, recognize that these declines are always so violent that they shake out everyone who is experienced about the way the stock market works -- hence the anger that comes from the left field of Twitter.

Fourth, the analysts will not come out of their foxholes to defend these stocks until after they bounced. They will be of no help.

Finally, understand that there is probably nothing "wrong" at any of these companies. Nothing fundamentally has changed. But how we view stocks through the prism of the government shutdown and how we viewed them before are two different things. If we go into a hard recession -- which is what looks to be the betting line today -- then people will pull in their horns and try to shed their riskiest equities, these highfliers.

So, accept what the market does. Recognize that it probably isn't over yet. You want to take gains -- or losses if you just bought them two days ago? Makes sense if you are worried about the next couple of days,. Otherwise, find your deep-in-the-money call contract out until next year, and get ready, in a day or two, to buy. 

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