todays top stories
Monday  June 5, 2006

The Volatility Dance

"Volatility can be scary, it can make you feel like you understand nothing about the market and it can make you feel like the market is positively bipolar", Cramer said tonight.

Cramer's two step plan is this: Understand the volatility, then trade off of it.
"The number one reason getting in your way of making money is lack of understanding volatility," he said. "You get volatility when the market cannot process supply and demand correctly."

"The first source of volatility", Cramer explained, is that brokers don't position any more. (Positioning is when hedge funds sell stock slowly as opposed to dumping it outright.)

The second is because of new exchange traded funds (ETFs).  The stocks contained therein rise and fall due to the movement of the ETF itself.

The third is hedge funds.

"Hedge funds are pushing stocks up and down," Jim told us. "You are at the mercy of mutual funds, pension funds and hedge fund accounts."

As an example on how to play the volatility game, he said you must first pick a stock, and never ever a bad company.  Jim chose OXY for this exercise because "OXY is the least hedged of all the oils." 

Using OXY, Cramer said if you have 300 shares of it, you should drop 50 shares every time it jumps 3% and when it goes down, buy it back.

"Treat trading like a dance," he said. "When the stock goes up, sell a little and when it goes down, buy a little."

"Buy and sell your stock in increments because small trades equal big payoffs."

As always, Jim is just giving us the tools to do for ourselves. 

"Take my rules and apply them to yourself."



On the program, Jim Cramer speculated that DYN is out to sell themselves.  He noted that the balance sheet problems they had have been cleaned up and they dumped all of their senior management, save its CEO.

KRY will find out tomorrow if they are granted approval to proceed drilling in their mine in

"We are in the hands of the ministry of the environment", CEO Todd Bruce said. "We are in the final administrative state in having the permit issued."

Cramer pondered '
Why would President Hugo Chavez allow a profit-making company to come into Venezuela?'

"Because a large part of the mining industry is based there," Bruce said. "There are many companies, including Crystallex, that already operates mines there", he said. "It's basically just more of the same."

Radio Recap

Cramer explained that crude prices are affected by 2 things: supply and demand, and world events.

Cramer told listeners to take a closer look at
BHI  (BAKER HUGHES INTL), who had the best quarter out of all the drillers.

Cramer said that now is the time to think about investing in Peru becuase of Alan Garcia's victory over the leftists in his country's runoff election.

Jim noted that Mr. Garcia like capitalisn ans Wall Street and could signal good things for United States interests in Latin America.

He said to check out 
AMX  (AMERICA MOVIL SA)  as a fresh government Peruvian play.

U.S. Job Report May Slow Down Fed's Rate Increases

US job growth has slowed down in May according to the government's monthly employment report, released June 2nd.  Many speculate that this turn may give the Federal Reserve reason to put a pause or at least slow down the interest rate hikes of late.

The unemployment rate fell from 4.7% to 4.6%.

The May rate is the lowest since July, 2001.


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Artwork courtsey of  Corey Pierce.