We’re locking in profits in a contested stock now that the market is overbought
Shortly after the opening bell, we will be selling 100 shares of Morgan Stanley at roughly $100.85. Following the trade, Jim Cramer’s Charitable Trust will own 1,000 shares of MS, decreasing its weighting to 3.06% from 3.35%. We’re raising cash Tuesday because the S & P 500 and Nasdaq ‘s eight-session win streaks, their longest of the year, has pushed the market deep into overbought territory, according to the S & P Short Range Oscillator , our longtime trusted momentum indicator. This technical tool closed Monday at 7.26%, well above the 4% threshold that indicates an overbought market. When the S & P Oscillator flashes overbought, our discipline kicks in and we look for areas to raise cash. We view it as a sign the market has made a big move in a short period and the risk-reward isn’t as strong has it had been. Indeed, the S & P 500 is now up about 8% since its close on Aug. 5, the day the market fell 3% after the yen-carry trade blew up and caused forced liquidation of stocks. As for Morgan Stanley, the stock has made a strong comeback over the past few weeks — up more than 10% since Aug. 5 — and is only trading about $5 off its highs despite concerns about a full valuation. That’s what Wells Fargo analyst Mike Mayo argued on Aug. 1 after he downgraded Morgan Stanley to a sell-equivalent rating when the stock traded at $101. We disagree with the call, in part because the stock’s hefty 3.6% dividend yield and buyback provide a floor of support. But we also don’t want to completely ignore it. We’ll realize a gain of about 11% on stock purchased in 2021. (Jim Cramer’s Charitable Trust is long MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
