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Cramer: Deluge of Downgrades – What to Make of It?

Tuesday, 15 Jan 2013 | 6:02 PM ET
Market Having a Snoozefest?
Mad Money host Jim Cramer offers his take on today's market action.

It seems the market is awash in downgrades. That is, at almost every turn an analyst has something negative to say.

"I've heard dozens of these downgrades in the last few days," said Cramer. "Over and over again analyst go from buy to hold citing stretched valuation and no catalysts."

Just take a look at some of the calls:


-JP Morgan downgraded American Express from 'Neutral' to 'Underweight' saying the credit card company may struggle to regain operating leverage.

- Bank of America downgraded Biogen from 'Buy' to 'Neutral' citing stretched valuations and a lack of catalysts.

- Jefferies downgraded Regeneron from Buy to 'Hold" again citing lack of catalysts and stretched valuations.

Are these downgrades cause for concern – Cramer doesn't think so. Instead he believes they may actually be a spark of optimism.

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Here's why.

On top of these downgrades, the market has also gotten some other negative news as well.

"We've had some horrendous headlines out of Washington that suggest a total government shutdown may lie ahead," reminded Cramer. "We're now being told that this debt ceiling wrangle could be even worse for the country than going over the fiscal cliff."

Also LuluLemon, loved by Wall Street for its growth potential, gave guidance that disappointed. "We had a reliable, steady secular growth story and in one fell swoop it vanished," said Cramer.

In addition, Facebook promoted a big mystery announcement that got Wall Street all hot and bothered. But, it ended up being less than amazing. (Facebook is introducing a tool to search information posted on its social network.) "What a bust that was," exclaimed Cramer.

But here's the important part – amid all these downgrades and somewhat negative headlines the market didn't get hammered.

"Sure, there was no rally, but when you get a relatively unchanged tape with that hideous series of headlines you have to be amazed."

So what's happening?

According to Cramer, although analysts are getting tired – the market appears to be anything but tired. Although the Dow Jones and S&P traded lower mid-session, by the close both had closed modestly higher.

That may be telling.

In other words, Cramer thinks the price action in the stock market may be a sign that the stock market is consolidating before it breaks out. And therefore moving to the sidelines may be a big mistake.

Ask yourself a few questions:

- What happens if the valuations turn out to be attractive because business doesn't cool?

- What happens if the world gets better and those companies with international exposure start doing better?

- What happens if we actually solve the debt debacle and there are no more obstacles from Washington?

"I think I know what happens," said Cramer. "It's the same thing that has always happened at this juncture when we've had breakouts from big ranges: the analysts are left behind by the wall of worry that they cannot climb."

"I bet that this is one of those moments where the worlds' economies are going to get better and these are real breakouts that are lasting."

"Sure, we can have down days," Cramer added, "but they are days to buy, not sell, because the doors to get in revolve so quickly that you've got to jump off the sidelines when you see them open."

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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