Cramer says January rally emotional and warns against chasing momentum
CNBC’s Jim Cramer said Tuesday that early January trading showed how quickly emotions can take over markets at the beginning of the year and warned investors not to confuse momentum with durability.
Cramer said the market is driven by three groups: Momentum traders chasing last year’s winners, “hope is eternal” investors buying fallen stocks and companies that should never have been left behind in the first place.
“We found that these trends lasted until ten trading days into the new year, where we didn’t even see a sharp correction,” Cramer said. “It wouldn’t surprise me if this happened again.”
Cramer pointed to recent losses in oil stocks following political turmoil in Venezuela as a striking example, saying investors are simply seeing buyers disappear and sellers overwhelming the market.
He said momentum traders are currently flocking to data storage stocks as AI is driving a boom in demand. shares Western Digital, SanDisk, Seagate And Micron The shortage increased as prices rose and short sellers struggled to cover the situation.
The rally also galvanized chip equipment manufacturers. Lam Research, Applied Materials And KLA. But Cramer warned that emotional buying can become irrational and quickly reverse once supply reaches sufficient levels.
Beyond technology, bank stocks are extending their gains in 2025 as regulations ease and deals pick up, Cramer said. He touched on his power. Goldman Sachs, Capital One And citigroupHe noted that valuations have expanded after years of pressure.
Cramer also marked his comeback games as follows: Nike And StarbucksHe points to insider buying at Nike as a sign that executives believe the worst is over.
But the opportunities he favors are what he calls stocks of mistaken identity. Amazon.
Cramer said Amazon’s recent underperformance creates the false impression that something is amiss despite strong growth in its cloud, retail and advertising businesses.
Of the three categories, Cramer said mistaken identity stocks offer the best risk reward at the start of the year.
“If you have big wins… please don’t be greedy,” Cramer said.
