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Cramer: Beneath Cliff, Does Market Have Underlying Strength?

Alan Copson | Photographer's Choice RF | Getty Images

Is it game over for equities? "Absolutely not," said Jim Cramer on Tuesday's broadcast. But before you put money to work in the market broadly, the Mad Money host said that one of two things needs to happen.

"We have to get to a resolution on the fiscal cliff - or we have to reach a point where the market no longer expects a resolution."

The former you know. But the latter?

Although a compromise would be the best possible outcome, for investors it wouldn't be bad if the market simply accepts the fiscal cliff, that is the confluence of tax increases and spending cuts that take effect in January.

"Once that is baked into the market, then the glass goes form being half full to being half empty," he said.

What's so bullish about that? "The market will become much more immune to disappointment, Cramer said

Read More: Cramer's Plays on Housing Rebound

In other words, it will flush out the weak hands and leave only the strong hands. Cramer said it's those buyers who should provide a floor in the market.

And he also said they can be broken down into 3 groups.

-The first will be people who fear missing a move like we had after the debt ceiling was raised last year, a move that accounted for a huge chunk of market performance. "These people believe there is an inevitability to a deal and think selling now is tantamount to giving up near the bottom.:

- The second are those who feel that there really won't even be that much of an impact from falling over the cliff. "They think that a recession won't occur and the whole thing is overdone. They think it's just fear mongering at this point."

- The third group actually thinks that after a little bit of time passes we will actually be better off for going over the cliff. "The budget deficit will be reduced. The rich people will pay more through higher taxes on dividends and capital gains and the spending will be sliced where it should be, notably the defense budget and unnecessary social programs."

What's the bottom line?

Once hope has been vanquished from the market, Cramer said, that's the time to buy stocks. Play growth themes. Buy them on the way down as the scared sellers bang them out."

More Plays

The Mad Money host has been outlining some of his favorite plays all week. Read More: Cramer: Ugg Maker Becoming Aha Stock?

However on Tuesday's broadcast he suggested two other groups that he said could generate "some real bang for the buck on the way down."

Autos

Cramer Comment: "The average car is now on the road for eleven years making new cars an absolute necessity for some drives. And don't forget about that great car destroyer super-storm Sandy," Cramer said.

In this space, Cramer said Ford's one to watch.

Housing

Cramer Comment: I remain convinced that this housing turn is for real and we got ample evidence today from Toll Brothers that I am probably right," Cramer said.

"Affordability for homes has skyrocketed. Rates remain ridiculously low. The inventory of unsold homes has come down sharply and pricing is moving up."

And Toll said it's seeing pent-up demand explode. That is, people who put off moving and perhaps starting a family just don't want to wait any longer.

By the numbers, Toll's net signed contracts jumped 70 percent to 1,098 units in the fourth quarter ended October. Backlog climbed 54 percent. And cancellations dropped to an all-time low., all things we learned about from Toll today.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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