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Cramer’s strategy should Fed taper

Tuesday, 17 Sep 2013 | 6:00 PM ET
Don't fear the gauntlet, it will give buying opportunities: Cramer
Tuesday, 17 Sep 2013 | 6:00 PM ET
Mad Money host Jim Cramer discusses what to think about as the Federal Reserve sets to release a statement on tapering.

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

Will they or won't they? It seems all anyone on Wall Street can talk about is the Fed statement due Wednesday afternoon.

At the conclusion of the two-day meeting, a growing number of pros believe the central bank will announce its intention to taper bond purchases in the amount of $15 billion.

Considering the Fed's bond buying program has been nothing short of historic, Cramer understands the anxiety.

If the central bank announces finite plans to taper, some say markets could go into a tailspin. "Those skeptics are saying when the Fed's done, it's all over. The market will be like a car that's run out of gas," explained Cramer.

"I want to tell you how wrong that is."

Pete Marovich | Bloomberg | Getty Images

First Cramer said that as Europe and China grow incrementally stronger, cyclical stocks that benefit from economic improvement should continue to rally.

Second Cramer said because it's getting late in the year and many stocks have generated significant gains, money managers will feel compelled to buy, if only to show clients they're holding winners.

Third, Cramer said that companies are acting more aggressively in their attempts to increase the value of their stocks; that's is they're introducing additional buybacks, dividend increases and more.

All told, Mad Money believes these catalysts are strong enough to justify the market at current levels if not a further advance. However, that's not to say the market won't sell off on news of tapering – Cramer thinks it probably will.

Here's how Cramer would navigate it all.

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"For the traders among you, as soon as we're down or up a half of a percent, sell the pop or buy the dip. When we go back to equilibrium you can cover or sell, and then, after you put in some thought, you can put on a position."

Investors however should move more cautiously. "Unlike traders you can't buy the first dip," he said.

That is, Cramer's research suggests the market is overbought, therefore if a down move gathers momentum, it could be somewhat severe. Also he believes once the market knows with certainty that tapering is underway, it will shift focus to the debt ceiling, which presents another serious headwind.

"The pattern of these talks is that they start off with hope, then they devolve into acrimony, and then plunge into the abyss of total chaos," Cramer noted.

That too suggests sentiment could turn negative.

However, ultimately the Mad Money host believes lawmakers will achieve some kind of resolution. And because of the tailwinds outlined above, when that resolution comes, he thinks the bulls win the day.

Therefore, if the Fed statement triggers a sell-off, Cramer recommends making a shopping list and then buying strategically. "Ultimately I believe this will be a buy the weakness event," he said. It's just a matter of when to buy the weakness.

Call Cramer: 1-800-743-CNBC

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