Cramer: Buy on the dip of 3 high flying stocks?
Often Jim Cramer sees that when the entire market rallies, individual stocks that were once loved fall out of favor. When that happens, does it mean that these high-flying stocks are taking a quick breather before going higher? Or have they totally lost their mojo?
Chipotle, Monster Beverage and LuluLemon are three stocks that have been red hot lately, but have started to crash. To find out what could be in the future for these three high-profile stocks, the "Mad Money" host turned to Ed Ponsi, a technician and managing director of Barchetta Capital Management, as well as Cramer's colleague at RealMoney.com.
Ponsi pointed out that while these three stocks have been leaders in the past, investors should not expect leaders to last forever.
"A bull market is like a relay race: One or two sectors will take the baton at any given moment and set the pace, but after they've run their course they'll pass the baton onto the next leadership group," Cramer said. (Tweet This)
Ponsi found that Chipotle (NYSE: CMG), Monster Beverage (NASDAQ: MNST) and LuluLemon (NASDAQ: LULU) are classic examples of generals that have recently been demoted, and have some pretty scary looking charts.
First up is Chipotle's long-term weekly chart. The stock recently sold off after the company was hit by a lack of humanely raised pork, and management disappointed Wall Street with conservative guidance. Unfortunately the stock has been unable to gain any ground since last summer, and has basically been trading sideways.
To make matters worse, Ponsi found that Chipotle has broken down the long-term trend line that has acted as a floor of support since 2012. He thinks this is a pretty ugly chart, and it could get a whole lot uglier if it falls below $607.
"My view? I still like the fundamentals here, and if Ponsi's right that Chipotle does have a real beating in store, I think you have to view that as a buying opportunity," Cramer said.
Next up is the daily chart of Monster Beverage, which has also taken a beating lately. And while the chart is on a smaller scale, Ponsi also sees similarities with Chipotle. Additionally, it has just fallen below its 50 day moving average-which is a deadly move in a chartist's perspective.
However, Cramer thinks that the market overreacted to Monster's latest quarter. He considers the fact that Monster could use Coca-Cola's network as a huge positive, and investors need to deal with the short-term pain. Additionally now that Cramer thinks the dollar has peaked, currency problems for this company could go away.
"If we get the weakness that Ponsi's predicting, I think you could do some homework of your own and seriously consider buying Monster Beverage into weakness," Cramer added. (Tweet This)
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Lastly, there is LuluLemon's daily chart which Ponsi is downright afraid of. He sees that this stock has now broken down from a bearish double-top pattern, which could mean that the stock could fall a heck of a lot lower below its floor of support at $60.
And just like Chipotle and Monster, this chart tells Ponsi that there is more pain to come. However, Cramer is more interested in ringing the register for LuluLemon and wait for a better entry point.
"These are high quality companies, and at a certain level I think their stocks will become too attractive to ignore," Cramer said.
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