Thursday’s broad declines in the major averages didn’t stop CNBC’s Jim Cramer from noticing the positive action in individual stocks like UnitedHealth.
“I’m talking about these multi-day-up extravaganzas, where investors can’t buy enough shares in one session after a positive event so they keep coming back, day after day after day, to get their full positions on, no matter how much the stock runs in the interim,” the “Mad Money” host said. “Honestly, I have never seen anything like it, so I’ve got to point this out and explain it to you.”
Take UnitedHealth. Shares of the largest U.S. health insurer have been surging every day since the company delivered a strong earnings report on Tuesday, beating Wall Street estimates and issuing positive guidance for 2018.
Cramer was surprised that buyers kept reacting to the same news day after day, pushing the stock higher. But he soon realized that there was another side to the story.
After all, individual investors aren’t the only ones buying the stock. When he worked as a professional block trader, Cramer used to buy huge amounts of stock in bulk.
“I can tell you that we’re seeing something truly amazing happening here,” he said. “UNH, a $235 billion company with nearly a billion shares outstanding, doesn’t have enough liquidity to sate all the buyers out there at lower levels. It’s kind of like a bunch of Godzillas, unleashed all at once, trying to beat each other over the head to get some stock in, as much as possible.”
For example, if a block trader gets an order from a client for 100,000 shares of a company, he usually buys 50,000 shares, then “works the order” to get a lower price for the remaining 50,000 by the end of the day, Cramer said.
“The broker’s so confident there are sellers all over the place … that he’ll short you the stock as a favor to get the rest of the order in and keep you happy,” the “Mad Money” host explained.
But in this market, there aren’t enough sellers for block traders to be able to short the stocks. Stock prices keep climbing, so hedge fund buyers are racing to complete their orders, which must be big enough to “move the needle,” Cramer said.
“What’s so remarkable about this? None of the buyers seems to give up and walk away no matter what the price … and very few sellers appear,” he said. “It’s as if the owners don’t want to miss out on what’s to come and the buyers are desperate to have these shares because they expect them to fly much higher.”
“It’s a crazy case of FOMO — fear of missing out — on the next big move, even as these buyers are creating that move with their own massive footprint,” Cramer continued.
The “Mad Money” host has watched this trend reverberate through the market in semiconductor stocks, devicemakers’ stocks, industrial stocks and others.
Still, Cramer was loath to write this off as irrational exuberance, or the idea that the market is approaching a top.
“It’s really indicative of a shortage of stock. So many shares of so many companies have been retired, bought back and crunched. So many existing shareholders are owning, no longer renting, their stocks, that portfolio managers have no choice but to drive up prices dramatically with their own buying,” the “Mad Money” host said.
“The bottom line? The most amazing thing is that this gang-tackle buying that I’m talking about isn’t happening in a vacuum,” Cramer concluded. “Today the averages got slammed and it didn’t even matter. Now that’s FOMO with a hashtag, and I think it’s only going to get more heated as earnings season goes on.”