If the momentum traders are to be obeyed -- and I think they have to be, short term -- you have to do what I hate to do and sell the rails, sell all of them because this is Day 1 of the selloff, and they never stop selling them once they are broken.
I wish I had listened to this kind of momentum nonsense when Devon (DVN - commentary - Cramer's Take) was at $123 and National Oilwell Varco (NOV - commentary - Cramer's Take) at $92. Once the momentum guys turn -- and they are turning on CSX (CSX - commentary - Cramer's Take), Norfolk Southern (NSC - commentary - Cramer's Take), Union Pacific (UNP - commentary - Cramer's Take) and Burlington (BNI - commentary - Cramer's Take) -- they just don't stop. It is terrible to have to sell down 4, but the pattern has been that there is another down-4 day coming tomorrow, and then another, and then still one more ... punctuated by a plus-2 in the middle.
I hate this stuff, but we have to own that this is the kind of market we are in.
I am seeing it in the financials too, with that group being rocked by number cuts -- same thing, Day 1. (So now Dick Bove comes in and says JPMorgan (JPM - commentary - Cramer's Take) is a perfect storm? Spare me. Just spare me.) There, too, have to give 'em wide berth. I like the financials, because I think the Fed can cut rates, but I recognize that we are going to have some rocky times in the group.
The market's obviously pretty dysfunctional here, but when you see this kind of selloff in stocks, you have to respect that it's just beginning, not ending. I would sell the rails, which have been favorites of mine. I would be a buyer of the two financials that are getting killed today, JPM and Goldman (GS - commentary - Cramer's Take), and after selling some Morgan Stanley (MS - commentary - Cramer's Take) for Action Alerts PLUS, I am looking to rebuild that one lower.
I don't know where Goldman stops. I don't know if it missed its quarter. I do know that when the smoke clears -- and the smoke will clear one day from this credit crisis -- Goldman, JPMorgan and Morgan Stanley will be the winners.
Again, as I said earlier, these big declines presage bigger declines. I don't want the rails, I do want to buy the banks on the way down in very wide scales -- the widest I have ever used in my career -- because the selling pressure is so overwhelming that it is the only way you can buy.
Random musings: I have been saying for some time that Downey (DSL - commentary - Cramer's Take) was the next Indymac. I think it's pretty obvious how bad things are. Hope for the best, but be prepared for the worst.