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Cramer: Out with the New, In with the Old

(Click for video linked to a searchable transcript of this Mad Money segment)

What the heck is happening in the stock market? It seems there's some sort of rotation underway, but it's not a rotation in any conventional sense.

"The price action is confounding more people than I have seen in some time," said Cramer. "There been a bizarre change of leadership."

For example, "Gilead, Celgene, Biogen and Regeneron had all been Street favorites. But every one of those stocks got hammered on Monday. Instead old pharma such as Merck and Bristol Myers thumped new pharma."

Similar types of moves happened in the technology sector, too. "Google traded lower, as did first half favorites LinkedIn and Yelp," Cramer said. Instead in tech, investors bid Intel and Microsoft higher.

Same kind of thing in retail. "McDonald rallied while Chipotle gave up gains. And Michael Kors sold-off while Walmart gained."

What should you make of this weird rotation?

Adam Jeffery | CNBC

"It's out with the new," said Cramer confidently. That is, investors are selling their winners. And many of the winners being sold, are 'new' favorites that have gained sharply and now trade at higher multiples.

"I've seen this before," the Mad Money host explained. "Money pros sell expensive stocks when they can't figure out what else to do."

"And it's in with the old," Cramer added. "That is, pros don't want to leave the stock market entirely. Therefore they buy old favorites that didn't rally as much.

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Cramer expects the trend to endure. "Look for more profit-taking in the huge winners for the year that are expensive relative to their growth rate," he said. Conversely, he said, watch for money to flow into stocks with lower multiples, old favorites, especially those that may have catalysts coming.

Think of it as the mechanics of money management driving the market.

"If you are doing well it's way too early to sell everything and go away for the rest of the year. You could miss out on significant gains. However, it's also dangerous to just sit in the high yielders because, we saw last week how quickly they can fall apart," Cramer said. "So what do you do? How about the the low multiple companies with good news potential? If you're a money manager, those old favorites are just right."

Call Cramer: 1-800-743-CNBC

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Symbol
Price
 
Change
%Change
GILD
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CELG
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BIIB
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REGN
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MRK
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BMY
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GOOGL
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LINKEDIN
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YELP
---
INTC
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MSFT
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MCD
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CMG
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WMT
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MIKE KORS HO
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