CNBC stock show host James Cramer thinks the stock market is overvalued and will fall 3 to 5 percent.
Cramer noted on his “Mad Money” show that companies this week are reporting the same mediocre earnings as companies last week, but stocks aren’t responding the same way.
“We have gone from a market, where stocks go up gigantically on so-so earnings to a market where they do nothing or get hammered,” he says.
And what does that mean for the market?
“When the same news that worked last week doesn’t work this week, you know the market’s about to take a break,” Cramer says.
“In short, it needs to go down. ... This is the most overbought market I’ve seen in ages.”
So what happens next?
“You either get a steep, vicious sell off,” maybe 5 to 7 percent, “or you get a smaller, slower drop, a gentle one,” Cramer says.
He expects a gentle one: 3 to 5 percent.
That’s because “the fundamentals of the money management business haven’t changed,” he says.
“So many hedge funds and mutual fund managers are scared of not owning enough stock. They will use any weakness … to get in.”
Many agree with Cramer and expect the bull market to resume soon.
Legg Mason, for example, says in a statement that the Standard & Poor’s 500 Index may hit 1,350 this year or the first half of 2010, as the economy emerges from recession.
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