What's really causing these market selloffs

Cramer: Parsing the negative narrative
Cramer: Uncertainty breeding cloud of fear   

Finally! A nice snapback rally with the averages jumping on Thursday let investors have a sigh of relief for a minute. It is on days like this that Jim Cramer likes to take a deep dive into the recent activity and figure out what has really been causing these selloffs.

After all, he doesn't want to be one of those bad news bears who just piles up the negativity on a bad day. So why not take a look now that it's been a good day? This way, the next time it occurs, you will be ready.

"In a nutshell, many investors think it's just too crazy out there. There are too many things happening at once. That means a rush to the exit every time they see their shadows," said the "Mad Money" host.





A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

The first thing under the hood of the selloff is velocity. The market has been on a tear since it hit bottom in 2009, and since then the rallies have attracted many new investors. Perhaps they were intrigued to get in on sexy companies like Facebook, Tesla, Netflix or Amazon. Or perhaps they wanted to make money from yield on a Clorox or Pfizer.

Some investors recognized that things have gotten better in the U.S. So why not take advantage of that by investing in stocks of companies that benefit from the recovery?

But now in the past few months, the optimism has faded and investors are stepping to the sidelines because the velocity of peaks and valleys are frightening.

Why is that?

"I think it's because the market's gotten too expensive for many managers given the rampant uncertainty, even if that uncertainty is based on good things ahead sometime in the future," said the "Mad Money" host.

Cramer has a few ideas of what is really controlling the marketplace.

First is oil. Yes, we know lower gasoline is great for most Americans. And while the airlines are rolling in dough right now, the swiftness in oil's decline hasn't penetrated through the vast industrial complex of the world yet.

Then there is what is going on overseas. China might be growing like a weed, but as we learned today, Alibaba is not. Meanwhile, the European Central Bank is doing everything it can to light a fire of growth in Europe, and it is starting to work. But the data figures aren't growing fast enough, and yields on many European countries' bonds have become laughable.

The yields are so low, investors are nervous that something worse could be lurking.

Additionally, this has caused a total avoidance of any company that does business overseas. And while companies like 3M and Harman are wiping the floor with profits because of their overpowering innovation, the whiners get the attention.

Squeaky wheel gets the grease, right?

The final ingredient to a market selloff is the Fed. Cramer thinks that investors are putting themselves on hold until the issues with lower growth overseas; a strong dollar and lower oil are resolved.

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"We need to feel that things aren't spinning out of control, even as it turns out that the backdrop is actually more positive than negative here," said Cramer.

This cloud of uncertainty is creating a sentiment of fear and worry in the market. So, on sunny days like Thursday, let's appreciate the sun shining down and be prepared for the next rainy day.

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