Lowe’s rally was fueled by more than just a strong quarter

Shares of Lowe’s surged more than 10% after the company posted better-expected results in its second quarter raised guidnace on Wednesday.

That’s not the only thing that propped the stock’s rally during the session, if you ask CNBC’s Jim Cramer.

After Home Depot — Lowe’s chief rival — beat profit estimations the day prior, a number of hedge fund managers loaded up on the equity and decided to short Lowe’s, he said. A short is when an investor places a bet that a stock price will fall in the near future and tries to turn a profit on the depreciation.

“This kind of trade is a way to bet on the comparative performance of companies in a given industry,” the “Mad Money” host said, calling it a “pairs trade.”

When Lowe’s reported this morning, however, they realized played their hands wrong. The home improvement retailer saw slightly higher same-store sales growth in the U.S. than Home Depot — 3.2% to 3.1%. The pairs trade was busted and caused a short squeeze, Cramer said.

“Traders know that discipline trumps conviction, that’s a rule. If a trade goes against you, you have to get out, which in this case means covering your short positions at any price,” he said. “Disciplined short-sellers bought back stock to close out their positions and take the loss, and it catapulted the thing into the stratosphere.”

Cramer gives more insight into short squeezes here

Maintain confidence

Traders work on the floor of the New York Stock Exchange (NYSE) on August 14, 2019 in New York City.

Spencer Platt | Getty Images

Cramer said that the economy is in good shape, but Wall Street could talk itself into a recession.

The stock market, climbing less than 1% during the trading day, continued to stage its recovery from last week’s massive sell-off that was triggered in large part because of worries about a recession signal, on top of the prolonged U.S.-China trade war.

The and both posted their fourth positive trading days in the last five, while the finished its third in four days.

“If the president were to simply calm down the rhetoric on China, rather than taking them on like some kind of trash-talking wide receiver, the bears would lose their biggest crutch,” said the host, who blamed fears about the bond market on “angry rhetoric and frightening jeremiads from supposed experts” who should listen to conference calls.

Read more here

The pulse of medium-sized businesses

Chad Richison, CEO, Paycom

Scott Mlyn | CNBC

The head of a payroll services company told CNBC that he doesn’t see signs of slowdown in medium-sized businesses, despite growing fears of a looming recession.

Paycom CEO Chad Richison said his company may not be a great “proxy” for the rest of the economy, but his company has a pulse on hiring in the country. The cloud-based human capital management provider has digitized how employers run their HR shops.

The tech firm is a disruptor in the payroll industry with more than 23,500 clients and targets businesses that employ 50 to 5,000 people.

“I think the economy’s been strong,” Richison said in a one-on-one with Cramer. “We aren’t really seeing a deterioration of growth in [medium-sized businesses], but, you know, we’re waiting to see what happens.”

Get more here

Cramer’s cloud coverage

Dean Stoecker, CEO, Alteryx

Scott Mlyn | CNBC

Technology has impacted nearly every industry and one subset is transforming the backend of business operations.

Cloud computing is a secular growth theme in recent years that has been one of the hottest parts of the market, yet the average person can’t explain what the companies that make up the group actually do, CNBC’s Jim Cramer said Wednesday.

The “Mad Money” host has crowned a number of his favorite stocks in the sector under the so-called and riskier “cloud prince” umbrellas, but only advises that investors only own companies that they have done their homework on.

“There are a lot of great opportunities in the cloud space, but if you’re going to own these stocks, you need to understand what these companies actually do, which is why we’re running this whole cloud primer series,” he said.

Cramer broke down and gave recommendations on 11 names in the cloud-based software cohort.

Go deeper here

Disclosure: Cramer’s charitable trust

 owns shares of Home Depot.

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