I Think This Now Popular Jim Cramer Stock Is Dangerous - Mike Swanson (01/04/2017)

Tuesday was the first day of trading in 2017 and I decided to turn on CNBC after the close and caught a few minutes of Cramer's Mad Money madness.

In this segment he advocated doing exactly what I said NOT to do in a video I released yesterday morning about how to make sector investing really work.

Here is the segment I saw:


Cramer took a look at the top gaining stocks in the S&P 500 in 2016 and asked whether you should buy them.

He started out by spending about 5 minutes talking about the number one gainer, which was NVDA.

He admitted that it is risky to buy a top gainer after it went up so much, but then recommended that you just ignore the risks.

His argument is that NVDA has become essentially a must own stock like INTC and QCOM were in the 1990's.

He admits that NVDA has a high valuation and then just goes into hype about "markets in their infancy" with NVDA.

It's the same type of talk we have seen in the past on CNBC whenever some stock becomes fad favorite.

In 2014 Apple became the must own fad stock and it has been a market laggard now for 16 months.

Then it was Facebook and it is lagging now.

When the DOW rallied up towards 20,000 in the fourth quarter of 2016 Facebook went down!

And then in 2015 Cramer was hyping up Chipolte and FitBit and Skyworks and they all crashed.

What all of these stocks had in common was that they went up for months, sometimes a year, and became a top performing stock in the market.

But when stocks become red hot for a year they rarely repeat and to buy based on just that momentum action IS NOT ENOUGH.

Frankly buying NVDA right now is essentially CHASING the gains of last year AFTER they have been made.

In fact last week I did an interview with David Skarica in which we both talked about dangerous short-term price action we were seeing in NVDA with a key reversal day that suggested it was about to pull back and at best that the upside potential was gone for the next few weeks for it.

And so yesterday while the DOW went up over 100 points NVDA dumped.

That's not a good way for a former big "must own" stock to begin the year out.

I agree with Cramer that it is key to be in the best stocks and best sectors in the market, I just disagree on how you figure out what those stocks are going to be and how you should enter them.

Rear view window trading leads to trouble.

Ironically if you read Cramer's FIRST book he explains how he bought things with good entry points to beat the market with his hedge fund. And it's a strategy that he does not talk about on CNBC where it seems he simply spits stock picks out nonstop day after day for viewers who want to gamble it up.

To see how I think prudent sector investing really should be done check out my post yesterday:

Can You Really Make Sector Investing Work In 2017? (The Missing Ingredient) - Mike Swanson (01/03/2017)

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