Market guilty until proven innocent: Cramer

How did it happen? How did the market break down so badly, and then have a little bit of a rally at the end of the day on Wednesday?

Jim Cramer thinks that what happened on Wednesday was not about the market news, and has more to do with how large money firms dealt with the sell-off and the flawed mechanics of the market. What happened on Wednesday was not about the market news, and has more to do with how large money firms dealt with the selloff and the flawed mechanics of the market. Cramer has indeed been in the trenches, and knows it can get nasty.

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Remember the 10-point checklist that Cramer shared on Monday of what needs to happen in order for the economy to have a sustainable rally? It seems like we may have taken a step backward instead of forwards on that checklist.

Instead of Ebola being contained, now a second healthcare worker has contracted the disease. Then out of nowhere, the drug company Abbvie decided it might drop out of the bid for Shire. That is a big deal, because there are large firms that borrow a huge amount of money to buy takeover stocks. That means the margin clerks of the lending firms are now calling banks telling them they need to put up more collateral.

Then interest rates on the 10-year Treasury fell below 2%. Investors were freaked out because they thought the economy was doing better. Now those hopeful souls were crushed as well. The market then tried to advance further towards the bell, but was whacked when Wal-Mart cut its growth forecast.

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The only welcome sign of the day was that with all of the margin selling out of the way, the rally at the end of the day was led by the hard-hit transport and oil stocks. (Though those stocks ended up failing too, with a few lucky gains in technology and healthcare).

"We sure got a whoosh down and we rallied from it. That is a good sign. We are oversold," said Cramer.

"This market is guilty until proven innocent and remains treacherous until the bigger issues are ultimately resolved," Cramer added. He thinks that we will see more selling next time there is a bad earnings report, Ebola outbreak, foreign rattling, or oil drop. Until that time, investors nervously watch and wait for better days ahead.

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