The Nutty Bull Market – Cramer's Mad Money (10/3/17)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, October 3.

Cramer said the bull market is behaving nutty. He looked at a few stocks and was shocked to see the market’s positive reaction on negative news. “There’s a total suspension of skepticism, along with a widespread belief that everything works out for the best. It’s really the stuff of novels, not reality, where the bad morphs into the good and the negatives turn into positives,” the Mad Money host said.

Tesla’s (NASDAQ:TSLA) model 3 production was 220 vehicles, instead of 1,260 expected by the market, and yet the analysts defended CEO Elon Musk. “Yet when I criticized Musk for the short-term failure, analysts quickly derided such small thinking, reminding me that Musk did say that the Model 3 would be manufacturing hell,” said Cramer.

Next was General Motors (NYSE:GM), which rallied to its yearly high when it released the new strategy of electric vehicles by 2023. The stock turned from a hated one to a loved one. “After years of not being able to get out of its own way, GM’s stock is now in historic beast mode, with analyst after analyst who’d been lukewarm suddenly embracing the darned thing,” he noted.

The stock of Delta Air Lines (NYSE:DAL) rallied 6.6% despite giving the estimate of the hurricane impact. “The idea that Delta’s not bathing in red ink was a clarion call to buy this bedraggled group. They are all beloved now, as much as they were hated just a few days ago. It’s a mad scramble to buy the stock of any airline, not just Delta, even though at most moments in history this would’ve been seen as a not-so-hot quarter and a good reason to sell,” said Cramer.

Sherwin-Williams (NYSE:SHW) had been going down due to the peak housing theory. However, the stock rallied 4% on Tuesday after the company announced the synergies from its Valspar acquisition.

Homebuilding stocks rallied after Lennar (NYSE:LEN) reported a good quarter. “Every time they report these spectacular numbers, the so-called experts presume that we’re looking at the last good numbers before the business falls off a cliff,” Cramer added.

The stock of Equifax (NYSE:EFX) rose more than 2% even as former CEO Richard Smith was testifying before Congress. “What an opportunity to buy the beaten-up stock of a company that the banks are still using as if nothing happened. Based on the way it vaulted more than 2% today, you’d think the stock of Equifax wasn’t facing gigantic lawsuits, or even that Sen. Elizabeth Warren may have upgraded it from a Hold to Buy and slapped it on the Congressional Recommended list,” said Cramer sarcastically.

Lastly, Domino’s (NYSE:DPZ) went up by 1.4% after the analyst upgrade despite negative commentary about the company recently.

“Logically speaking, many of these moves should not be happening. The action’s way too positive, but then again, you could also argue that maybe we’ve all just been too negative for too long. And until the bears start acknowledging en masse that things are better than they thought, this rally could be far from over,” he concluded.

VIX

Cramer went to the charts with the help of technician Mark Sebastian to get a read on the direction of CBOE Volatility Index, or VIX. The stocks went up on Tuesday despite the negatives. “When investors are scared, the VIX shoots higher; when they feel confident, the VIX goes lower. When you look at the action in the VIX relative to the action in the S&P 500 (NYSEARCA:SPY), it can give you a great deal of insight into where stocks might be headed,” said Cramer.

The VIX traded for just 13 days in September, and experts have called it the lease volatile month. Historically, August, September and October are volatile months, but the VIX spiked for a brief period after August and went down in September despite tensions between the US and North Korea. The VIX’s long-term average has been around 17 or 18 over the past 20 years, but in 2017, its highest close was just above 16 in August.

8 of the 36 closes below 10 since 2004 have been before 2017. VIX has been trading below 10 for five days in a row. “In short, this is unprecedented. It’s almost as though this market has forgotten how to feel fear,” Cramer observed. When the VIX and S&P 500 trade in the same direction, a reversal is coming soon. The charts now tell a different story from August. The S&P keeps going higher, while VIX is headed lower. This is despite the market watchers calling a correction.

“For the moment, the action in the volatility index, as interpreted by our VIX expert Mark Sebastian, suggests that this fabulous stock market, at least for the bulls, could have even more room to run. And it wouldn’t surprise me one bit if he turns out to be right, especially since, historically, the last three months of the year tend to be pretty positive for stocks, especially if they’ve been up,” he concluded.

Wells Fargo (NYSE:WFC)

For a long time, Cramer has liked Wells Fargo stock. “Long story short, we loved the stock of Wells Fargo for the very thing that ultimately got them in trouble: the cross-selling. We thought the bank had this unique business model where it was able to cross-sell products to individuals who do more than just open a savings account,” he shared. “‘How can I get more of your business?’ was always the signature line of anyone involved with Wells Fargo. Candidly, I truly believed they did it better than anyone else,” he added.

Eventually, everyone realized that lot of the cross-selling was fraudulent. Cramer was disappointed in how CEO Tim Sloan answered the questions of cross-selling in front of the Congress. “I wish he’d just made the case that Wall Street was willing to pay a higher P/E multiple for shares of his bank precisely because of its apparent success at cross-selling. That’s just the truth; for years it was why investors, including my charitable trust, owned the darned thing,” he said.

Even as Senator Warren called for Sloan’s firing, Cramer doesn’t expect much to come out from the hearing. “The only resignation I expect here is from the people like me who are resigned to the idea that nothing more will be done. This is America, where people who commit white-collar crimes for corporations rarely suffer anything worse than some firings and some clawbacks and some nasty looks at the supermarket,” he added.

Cramer called Wells Fargo’s past strength illusory. “Before the scandal broke, the stock got a premium valuation because of the cross-selling. Now that’s gone and it’s just another bank. There are zillions of them out there, many both cheaper and better,” he concluded.

CEO interview – Paychex (NASDAQ:PAYX)

Paychex reported yet another good quarter, and the stock went up 3.6%. Cramer interviewed CEO Marty Mucci to learn more about the quarter.

“We’re growing very consistently in small business job growth right now, and we’re seeing wages up, which is a very good thing, obviously, for the consumer, those employees, buying more, and I think that’s going to add to business confidence. And you see from the company side, really, our HR outsourcing is one of the fastest-growing segments of our business, and that’s adding more to the clients that we already have,” explained Mucci. Paychex is looking for acquisitions in the HR space to grow and achieve scale.

Mucci said the company is innovating on the technology front as well by getting new technologies faster than its competitors. Be it high-touch personal service or low-touch online service, it has something for everyone’s needs.

Cramer asked Mucci about his views on recovery in Florida and Houston. “Probably for the next month or so, we’ll see businesses down. The hours worked we saw drop dramatically, obviously. But then, typically, depending on whether those businesses can come back or not – but we think they will – you’ll see an uptick, frankly, in small business as landscapers and roofers and all of those contractors come into those areas to help them recover. So we really think that that’ll probably offset the downsizing of some of the businesses,” the CEO replied.

BioTelemetry (NASDAQ:BEAT)

In the second executive interview segment, Cramer called medical device maker BioTelemetry CEO Joe Capper to find out what lies ahead for the company.

Capper said that the connected health market is relatively new and no one knows how big it will become. He estimates the market to be up to $2B. The company’s cardiac monitor can be worn for 30 days; it is connected to a patient’s smartphone, from which the information is in the cloud, where technicians can access it.

Capper added that BioTelemetry will not suffer when it comes to consumer-grade healthcare connected devices. “You’re seeing some of these consumer-oriented products or consumer-oriented companies talk about products in this space. I think it’s wonderful. It grows the whole market. And they’re going to go see a physician, who’s going to run a clinical-grade product like theirs that has far greater detection capability, FDA-approved, to verify. I actually think it’s a great move.”

Viewer calls taken by Cramer

Allegiant Travel (NASDAQ:ALGT): Cramer’s favorite in the group is Southwest Airlines (NYSE:LUV), as the company has not lost money.

USG Corporation (NYSE:USG): Cramer thinks the stock will go up due to rebuilding required after the hurricanes. Be patient.

Marriott International (NYSE:MAR): As the caller asking the question was worried about property damage due to war, Cramer suggested he should exit stocks, buy gold and hold cash.

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