Cramer: Supply in Retail and Financials, Demand in Tech

 | Oct 12, 2017 | 3:48 PM EDT
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Sometimes we forget that the stock market is a place where at times there is too much demand and shares go higher and at other times where there's too much supply and shares get hammered.

Today's very much a day where you can see supply and demand in action and it's leading to some very difficult trading.

First, where's the demand? Anything tech. There's huge demand for the semiconductor stocks, for the gaming stocks, for the data center stocks and anything connected with e-commerce, social media and software.

Second, anything transport, airlines freight forwarders and rails.

Where's the supply? Once again in retail which is now bordering on travesty. There's so much merchandise for sale there that they are marking it down as if the store's closing. Total liquidation.

The oils are headed down because, once again, there's too much oil in inventory and there's no place to put it and the oil companies keep selling futures at $50. Nothing's changed. It can't get through that level.

Finally there's a new glut of inventory, the banks, which bodes poorly because this is just day one of the bank reports and they are laying an egg, not what we would expect, and maybe unlike the others an opportunity, but not yet, not yet at all.

Let's start with tech. There's something going on here that's a true Wall Street phenomenon, supply's actually begetting demand. This is as rare as the Northern Lights and when it happens you have to stop and marvel and then start buying.

I am talking about the $1.2 billion offering for the stock of Micron (MU) , the gigantic commodity semiconductor company. Earlier this week Micron's management announced it was going to sell a billion dollars' worth of stock and it looked like it was going to price at $40. Instead there were so many buyers that the upped the supply and priced it at $41. That's incredible and it showed you that there is so much demand for semiconductors that when a chunk comes for sale, the institutions clamor for it. Plus, Micron's doing something with the money that pleases all. It is taking $476 million of it and using it to pay down debt. The rest is going to buy new equipment to meet demand for its chips that are used in everything from the internet of things to cellphones to data centers.

Why is this split important? Because if it were to use all the money to pay down debt we would say, wait a second, doesn't it want to buy any new machines to make more chips because of demand. But if it were to be used for nothing but buying machines, then investors would say that Micron's going to overwhelm the market with chips and it would create a glut and the price of chips would fall making a mockery of the estimates for next year's earnings.

The virtuous mix is stirring interest in semiconductor stocks and the stocks of Cramer faves Lam Research  (LRCX) and Applied Materials (AMAT) which will, no doubt, get some new orders with the proceeds.

We've got buyers of social media stocks based on surveys of advertising that show that the big consumer products companies like what they see. We have no idea if the surveys are right but there is a sense that the sellers of Twitter (TWTR) and Snap (SNAP) are finished, meaning supply for the stocks has dried up so buyers have to pay up to get bigger positions. The stock of Facebook (FB) acts well, too, in part because these government investigations usually don't amount to a hill of beans and the companies are really good at buffaloing Congress into thinking that artificial intelligence will catch the bad guys who do the advertising whether they be Crypto Nazis or Russian "influencers."

E-commerce? What can I say. Amazon's (AMZN) stock has been hovering around the $1000 level for a couple of days and I think that the sellers have run out of gas. The buyers? They realize that there's room for an aggressive Walmart (WMT) and Amazon. It's domination remains I wish I could pin down the software strength. I am assuming that people believe that Microsoft's (MSFT) going to have a good enough quarter that it is worth getting in ahead of time.

Plus there is a new star on the horizon, DXC (DXC) , a ridiculous name for a company that is anything but ridiculous. It's a information technology integrator, one of those companies that help other companies figure out how to digitize. Today it hived off a not great piece of its business, its government operations, showing the hunger of management to bring out value. We've been telling club members of that this is a good one because the management is heavily incentivized to have the stock go higher. They are earning their keep.

We've got another day where there isn't enough stock to go around in the transports, so buyers are paying up for the rails, the freight forwarders and the airlines. We are hearing tales of price increases in the airline business and stronger deliveries in the rails. Oh and anything that's good for Amazon tracks well for FedEx (FDX) and United Parcel Service (UPS) .

So where's the supply? This morning a recent public offering, J. Jill (JILL) , a mall staple, reported a gigantic shortfall. The company had been viewed as a survivor. Instead we can only conclude that mall traffic took one more leg down this month. Another reason to buy the stock of Amazon. There are too many losers in retail to name, but the one that jumps out starkly is Ulta Beauty (ULTA) which has now fallen an astounding 120 points from its high, giving up 13 points just today on a negative piece of research about near-term sales. Two culprits: an aggressive Sephora  and, you guessed it, Amazon. The stock is still not cheap and remember my watchword, if Amazon competes against you, investors will not pay a premium for your stock. Go ask shareholders in Walgreen's (WAG) , a great company that is simply rumored to be disrupted by Amazon.

Oil's stuck around $50 and the stocks were beginning to reflect a potential breakout. Now that seems elusive and there are sellers everywhere.

New to the list of suppliers of equity? The banks. Both JP Morgan (JPM) and Citigroup (C) reported strong earnings, but given the runs, the strong earnings weren't enough. It's been ages since these companies had to build reserves for defaulted customers but both Citigroup and JP Morgan talked about having to do so for their credit card businesses, leading investors to conclude that this is the beginning of a new negative credit cycle. I think that's too extreme. However we now have to think that investors have lots of supply to offload of this strong group and the December rate hike is too far away to hang your hat on.

I am not concerned, nevertheless we have to see all of the banks report and I wouldn't touch these until next week at this time when the sellers come to their senses and recognize that the consumer is getting more credit than before and that has consequences.

I am sure that there are some people who want to relate some of this supply in the banks to Washington. Higher insurance costs, higher rents, higher auto costs can strap a consumer even when employment is strong. That $4000 tax cut that the president is promising for the middle class would certainly go far toward paying down the debt. I don't know a CEO soul in the real world outside of Washington who believes there's any relief coming, so all I can say is, once again, you've got a non-event event.

As always recall that this market is fickle. Yes oil and retail have been a continual disappointment but supply does come out in tech and transports on any weak earnings report. As for the banks? They've run a huge amount. It looks like they are now going to give you a chance to get in them if you don't own them. My advice: never buy day one of a big sell-off. There will be more supply behind it.

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