Patterns play a huge role in good stock picking, especially for traders. They are so pronounced that there are algorithmic programs that tell you to buy all sorts of stocks if oil's running or rates are plummeting or the dollar goes kerflooey.
I have never been a huge fan of the algorithms or their acolytes. There are patterns that reveal themselves quite easily to the naked idea and you can spot them ahead of the programs on most days. They are too idiosyncratic to spot, but when you see them you have to pounce.
Let me give you some examples from Tuesday's action. First, I have been saying for ages to own Apple (AAPL) not trade it. But there are certain days in the year when I say that you have to wait to buy Apple at a lower level.
This is one of those days.
Because Tuesday was an unveiling of a new 5G phone and, like I predicted, the pundits almost universally panned it within a few minutes of seeing it, if they saw it at all. They describe it as incremental, a damning word that makes it sound like a me-too event and offering. I got the actual specs from Apple, and I am more excited this phone than any since I bought the four and not just because its 5G capability. The screen. The colors. The huge leap in durability -- which is important for those of us who have dropped their phone and saw it splinter spectacularly. There are so many new features and a level of speed that's so insanely fast that you have to be a luddite not to see all of the greatness this phone has.
But its completely lost on these critics, many of whom seem to have not liked anything Apple has put out since Steve Jobs died. Me? I have the 11 and while I have it I have already put out the word to my wife that I want the 12 for the holidays, the wider one the better.
I know, I know, I have the money to afford it. This is like the humongous criticism I received for wearing an Italian 180-count fiber suit to my garden where I picked a gourd. The majority of people seemed to think that I actually garden in a suit for the wealthy. My wife will turn in the 11, buy the 12, and do just fine.The points are? There is always a runup into the launch, and then there is always a slide as the analysts pooh-pooh it. What they don't show is that they will all buy it as soon as it comes out. Bunch a jokers.
Pattern No. 2: Amazon (AMZN) Prime. Here's an incredibly hyped event that unfailingly fails to inspire. We on the "Mad Money" team all perused the sites and were surprised that they had nothing that we really wanted, even as the stock ran some 300 points into the event. Don't you have to wonder how obtuse these buyers are? What did they think, that thousands of Martians just descended to planet earth, set up RobinHood accounts, and then bought Amazon right into the day's event? Sure, the stock was able to run at one point -- more Martians I fear -- and then it collapsed midday before a frantic, but futile sucker's rally. This thing was scheduled months ago. It's incredibly dumb just to go buy them.
You want simple? I have been saying I hate the bank stocks and we own only two of them for the charitable trust, JPMorgan (JPM) , because it is the best there is, and Goldman Sachs (GS) , because this is very volatile market and that's great for them.
As soon as Citi's (C) number's came out, the stock started sliding, and that tugged on JP Morgan's stock. Now I can tell you that neither bank's number was terrible and both beat the estimates, but that has come to mean nothing when it comes to this cohort. They are not coal. They are not tobacco. They are not oil and gas, but they sure aren't anything good.
What matters, though, is that when the bank stocks go down, we immediately get a huge amount of call buying in Paypal (PYPL) and Square (SQ) . I mean humongous. A lot of it out of the money. The market makers have to short them, and then the market makers are overwhelmed by endless buying, something they have never seen before. And I mean never. There have only been a couple of stocks in my time where so many traders and trading desks are caught short. It happens every day now. The buyers won't quit. They just keep buying. I don't know how they get out of their positions, but their relentlessness is shocking and their willingness to move stocks with their own buying, something that is antithetical to most institutions, confounds the pros. They are like Butch Cassidy and the Sundance Kid asking, "who are those guys?" They are a youthful posse that just won't quit.
There are some other names that when the Nasdaq hangs in, they operate on. We have had the management of Fastly (FSLY) on "Mad Money," and it's a good company that helps make the web run faster. It has TikTok and the New York Times (NYT) as clients and it is greased lightning. But it is in a competitive space -- go ask Akamai (AKAM) -- and it can lose customers. No matter, when the Nasdaq is running, the youthful crowd led by none other than Dave Davey "Day Trade" Portnoy, blitzes into calls of the stock he calls "Fistly." Institutions that are short it, expecting it to have a weaker quarter, are run over and run over again and again. Portnoy moves "Fistly" the way Russell Wilson moves the Seahawks.
We got bad news from Johnson & Johnson (JNJ) and Eli Lilly (LLY) about possible risks with their vaccine and therapeutics, with JNJ having a patient with health issues and Lilly with who knows what. As soon as the news came out, you knew to grab the stocks of Peloton (PTON) and Zoom Video (ZM) , because you could tell the posse was poised to buy call options. We got the same reaction to the shares of Peloton, brought up again, by call buying. The troubles with the Lilly therapeutic brought Amazon back from dead near the bell.
Does any of this make sense? There is a lot of silly buying and money being lost by crowd followers and those who buy calls that were bought lower, by someone else.
The patterns are so ingrained and gettable that you have to be surprised that everyone can't figure them out and profit from them. But there's a simple reason: Often the moves are too sophomoric to believe. When you have buyers who are this thoughtless and lacking in cranial power, you get these patterns and that means you have to lose all you know and go back to a simpler time where people bought stocks way too late and sold them even later.
(JPMorgan Amazon, Johnson & Johnson, Goldman Sachs and Apple are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)