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CNBC’s Jim Cramer on Tuesday urged investors to resist getting greedy when stocks go parabolic.
“Instead, I say go for the stairstep stocks. They won’t seem to make you as money as fast as a stock running parabolic, but notice the word seem,” the “Mad Money” host said. ” Remember, you don’t make money until you sell and the vast majority of people who are in a parabola never let go.”
A parabolic move occurs when a stock’s gains accelerate rapidly, often after a strong catalyst draws in momentum investors and pushes shares sharply higher. While those rallies can generate outsized returns, Cramer warned they often unravel just as quickly once sentiment turns.
Many stocks tied to artificial intelligence infrastructure and the data center buildout soared during the first half of the year before pulling back sharply in recent weeks. Shares of chipmaker Sandisk, for example, have plunged more than 50% from their June 25 record high after an enormous run dating back to last year. Cramer said that’s why his Charitable Trust, the portfolio used by the CNBC Investing Club, trims positions when they’ve gone parabolic, rather than trying to call the exact top.
“I always advocate taking something off the table when a stock goes parabolic,” he said.
He pointed to Arm Holdings and Corning as recent examples. The Club exited its Arm position on July 8 after just a few months of ownership. It took profits on multiple occasions in May and early June while the stock surged, before Cramer ultimately decided its swings were too volatile for his liking. Arm shares have fallen 44% from their June 18 record high. Meanwhile, the Club trimmed its Corning position multiple times in late June, locking in gains before the stock’s momentum evaporated. Corning has tumbled more than 50% from its June 29 all-time high, including 12% on Tuesday despite reporting better-than-expected second-quarter results. The Club continues to own Corning shares and maintains an upbeat view of its long-term prospects.
Cramer cautioned investors against viewing those steep declines as automatic buying opportunities, arguing that once a parabolic rally breaks, selling pressure can persist long after the fundamentals remain intact.
“My advice? Don’t be tempted,” he said. “A post-parabolic stock may look cheap, but the shareholders are all trying to figure out how to get out alive.”
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