Cramer: Short Sellers Played Role In Wednesday's Retail Surge

Retailers Target Corporation TGT and Lowe's Companies, Inc. LOW both delivered "fantastic upside surprises" in their earnings reports, but the double-digit move in their stocks that followed was due to a completely different reason, according to CNBC's Jim Cramer.

What Happened

Target's stock closed Tuesday's session higher by 20% and Lowe's stock gained 10%. These "massive moves" are in part due to "gigantic shot squeezes," Cramer said during his daily "Mad Money" show Wednesday.

Funds were betting against Target amid ongoing concerns that the company isn't sufficiently positioned to take on larger rivals like Walmart Inc WMT and that it will suffer more than others from tariffs, Cramer said.

The case for betting against Lowe's is based on larger rival Home Depot Inc HD stealing market share from the smaller player in the home improvement space, he said. 

Why It's Important

Short sellers are known for a disciplined approach to risk management, and when a trade goes against their favor, it is time to exit the position "at any price," Cramer said.

Disciplined short sellers were heavy buyers of both retail names on Tuesday to close their position, and by default contributed to the rally, the CNBC host said. 

What's Next

Fund managers betting against Target and Lowe's based on macroeconomic indicators and the yield curve inversion "look like dopes," Cramer said.

Quite the opposite holds true, as the economic outlook continues to boast a "strong tailwind" moving forward, he said. 

Lowe's shares were up 0.15% and Home Depot shares were higher by 0.85% at the time of publication Thursday. 

Related Links:

'Unheard Of': The Early Reaction To Target's Big Quarter

Retail Roundup: Target, Lowe's Report Earnings Beats; Pros Say Recession, Tariff Concerns Overblown

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