Charts and Commentary
Are there signs that high fevered, "emotionally driven", buying behavior could be reaching Mania levels?
The following true story happened at 3:36 PM, yesterday afternoon.
The company involved is Brocade Communications Systems, Inc., Symbol: BRCD
Here is their Earnings chart below: Bottom line ... nothing spectacular is going on here. In fact, next quarter is projected to be 2 cents lower than the same quarter last year. These are the projections of 15+ analysts.
There is a company called the StockPickReport (http://www.stockpickreport.com). They say they are registered investment advisors ... that they do not own the stocks they report on, and that they do not get paid to promote stocks from third parties.
Here is a release they issued on March 27th: "Important Stock rating Changes for Monday, March 27, 2006: Brocade (Nasdaq:BRCD) -- STRONG SELL"
Here is Brocade's Monthly chart:
So ... what happened at 3:36 PM yesterday?
Jim Cramer of CNBC told viewers that Brocade used to be a $130 stock and that he thought that it was a great stock to buy. Additionally, he told viewers that they should buy it to help them in the "stock contest" they were running.
The very second he said that he "recommended it", the stock shot straight up.
Twenty four minutes later, Brocade closed 7.03% higher ... not because its sales just shot up, not because its earnings just increased ... but because Jim Cramer told viewers to buy it.
Day traders immediately picked up on it and started to buy like mad ... See the price chart below and note the Volume as well.
Up until the Cramer announcement, the stock traded normally.
The volume for the lowest 3 minute period during the day was 2917 shares. The highest exception was 188,000 shares.
Then after Cramer ... every 3 minute period was in the millions of shares until the market closed.
In 24 minutes, $66,718,000 went into Brocade on a 7.03% rise ... on buying of almost 10 million shares.
Here was a stock that didn't have a great earnings projection, had a Sell recommendation on it, and Day Traders and speculators jumped in on it based on Cramer's recommendation.
Look at this chart again .... could we be reaching a level of insanity and mania when a wild, high fever stampede occurs because of a feeling and personal opinion of a TV personality?
One of the problems with this kind of influx is that ... not knowing the story, some investors can interpret the high volume spike as institutional buying and jump on the band wagon. This morning at 9:14 AM, Brocade was up another 3.22% at $7.05 in premarket trading. That makes this a 10% Jim Cramer move so far.
This kind of mania buying didn't stop here. It was also alive and well in the art market as seen in yesterday's New York auction.
A Turner, 1841 Venetian painting, was being auctioned. The highest price paid for the artist's work prior to this sale was $9 million US for his Seascape, Folkestone, which sold in London in 1984.
Before this auction, the promoters thought that at the wildest, outside price, that the Turner painting might fetch $20 million ... this was their hope. And if they were lucky, they thought that they might beat their all time record of $21.2 for the most expensive painting they ever sold in their entire existence. Exuberance and fevered mania bidding brought in $15 million beyond their wildest expectations. The painting sold for $35,800,000 ... setting a new auction record for the sale of a work by a British artist. (AP Photo/Christie's)
Questions to ask yourself ...
"Is this kind of high fevered buying behavior a sign that an "emotionally driven" buying public is out of control?"
"Is the Brocade stock trading an example of investing or one of speculation gone berserk?"
Historically, behavior like this happens near market tops, and not market bottoms.
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