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TheStreet.com's Jim Cramer says 10 crucial factors took their toll during that dreadful session. I'm still trying to get my arms around what happened to the market Friday. The action can be traced, I believe, to the following crucial factors:
1. The bull market in oil services, the best one around, got the stuffing knocked out of it by Schlumberger's (NYSE: SLB) (Cramer's Take) quarterly report, which showed that the U.S. is so bad that it can kibosh even the best international driller. I think that the problems are not specific to Schlumberger in that nearly all oil-services companies except for Transocean (NYSE: RIG) (Cramer's Take) have a tad of North American exposure, and a tad is toxic.
2. Caterpillar (NYSE: CAT) (Cramer's Take) once again was felled by how awful the U.S. economy is, with a quarter that reminded us that we are just a few footsteps from recession. Without aggressive Fed rate cuts, we are there in six months.
3. Honeywell (NYSE: HON) (Cramer's Take) and 3M (MMM) (Cramer's Take) had been terrific stocks for so long that we got spoiled by them and their earnings power overseas. They were felled by the U.S.
4. Mortgages: Wachovia (NYSE: WB) (Cramer's Take), a conservative lender, got destroyed by mortgages, or, more specifically, home equity loans, which are capable of taking down pretty much everything. Go no further than the honest analysis that E*Trade's (NASDAQ: ETFC) (Cramer's Take) Mitch Caplan offered this week to see what I mean.
5. A belief that a mortgage insurer is going to go belly-up. The action indicates that this is possible, and I credit my friend Doug Kass for this insight.
6. Mutual fund selling season: There are 10 more days to go to sell winners and sell losers and lock in some capital gains without big tax consequences. With so many funds up, that makes a ton of sense.
7. Expiration. Once you took out the bottom strikes, it looks like there were a lot of puts sold that kicked in to be longs. Check out the Schlumberger 105 put position if you want to see how this works. That was an accident waiting to happen.
8. Ridiculous bullishness off of the Investors Intelligence numbers, which showed more than 60% bulls. That's always a danger sign.
9. Worries about the Fed not doing the right thing. There is a persistence of thought that the Fed doesn't get it, even after the 50-basis-point cut. They get it, believe me.
10. Anniversary of the crash. That 20-year jinx was big, and it caused people down 200 to freak out and sell to beat the down-500 crowd.
That's my quick look at what caused Friday's rout. But more work on what's next is needed.
Random musings: Friday I took my 16-year-old daughter to visit colleges. I didn't check in once with a blog entry after the market opened. It was a bad day not to check in. For those who have been helped by these columns on the big down days, you have my apologies. But those who know me well know that I have done enough damage with my obsession. It was the right thing to do. I have to, at some point, start doing what is right by my family.
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Caterpillar and Transocean.
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Reader Comments (Page 1 of 1)
10-22-2007 @ 9:59AM
estelle diamond said...
I am 79 years old .. and still a "market guru" 50 years ago, when the market dropped 25 points the reaction was one of fright., or one of "Im getting an opportunity to buy stocks at bargain prices"... today with the market and perhaps equal to the 25 points of 50 ears ago.. dow struggling to maintain itself in the 14,000 range. with most guys watching their computers or TV~S a drop over 350 points becomes a calamity when it is only a drop equal to the 25 points of years ago and as the market numbers increase close to the 20,000 mark our .grandchildren and great grandchildren will see drops of over 1000 points as they pick themselves up, shake off the dust and pay $1500 a share INTEL
10-22-2007 @ 11:36AM
Helen said...
It would have been a bad day to miss visiting collegas with your 16 yr. old daughter. How refreshing that a financial guru like you is family oriented. There are more important things than money
10-22-2007 @ 12:34PM
john howard said...
Good for you Mr. Cramer. As you know, all those people that love you for your advice are more fickle than the market they fret over. Your daughter will always will be your daughter, your fans are only your fans as long as you tell them what they want to hear. Good luck to your daughter.
10-22-2007 @ 1:41PM
bruce miller said...
I have a 16 year old daughter and we will be visiting colleges soon. What schools is your daughter interested in attending.
10-22-2007 @ 2:25PM
Bryan said...
Jim -
Good for you - focus on your daughter's needs and your own. When you are 75 you will look back and remember that day - not the pick that you didn't tell someone to look at in their own crisis.
By the way - if people are not listening to you by now and able to see the light at the end of the dark tunnel like Friday, then too bad for them. It was a day to consider buying some positions in strong companies on weakness, not panic. You have been teaching the basics for long enough to let one 8hr period go to reinforce your mantra to teach one to fish not give the fish...
People need to be able to fish on their own - especially in a downpour - when the big fish will be biting big.
Now - a subject for another special show - saving and investing for your kids college. such as 529's vs taxable stock brokerage accounts; long term plays for those with the 1-3 year olds; 8 yrs olds; vs 13 yr olds. Do you invest long term differently than shorter term? Periodic saving - what to do with that $200/mn, etc... for those of us not blessed with a killer paycheck. etc.
thanks for your humanity and your mentoring.
10-22-2007 @ 3:11PM
Tom said...
Hang on Guru...The next 6-12 months ought to get interesting:
The dollar is the weakest in decades, credit problems are bombing major banks, oil is over $85 predicting a major gasoline price increase soon, housing is literally frozen and falling, grocery and energy prices are soaring, the huge illegal alien problem remains, medical costs are jumping, and manufacturing jobs continue to go overseas...and we have a $12 BILLION A MONTH war we can't seem to win.