GO
Loading...

Take 2 aspirin, wait 3 days: Cramer

David Sucsy | E+ | Getty Images

Take 2 aspirin, then wait 3 days.

That's the Mad Money host's prescription for shareholders who become ill because a negative catalyst is dragging down their high multiple NASDAQ stocks.

After 3 days, Cramer says the stomach upset should end. Well, it should end if a pattern that Cramer has identified continues to hold up.

Here's what Cramer thinks is happening every time a negative development takes down high fliers, broadly.

"First, when things get rough, aggressive managers lose their appetite for risk and want to keep their gains for the year," Cramer explained. Therefore they begin to sell these stocks which have been big winners year to date.

"Then on day two we get the shorts swarming in," Cramer added. "They have waited and waited for these stocks to crack and when they see the declines they take action."

On the third day, other short sellers sense panic and press these stocks even lower. "However, at that time, downside becomes overdone, which in turn attracts bulls, "Especially those waiting for a 5-7% pullback," Cramer said.

When it comes, those strategic buyers pounce.

Then, "the shorts are caught off guard," Cramer added "As the shorts cover, longs roar in and start buying with both hands." The result is a short squeeze.

----------------------------------------------------------
Read more from Mad Money with Jim Cramer
Cramer: Is this the next big thing?
Cramer's worst case scenario survival guide
Did you miss this bullish tell?
----------------------------------------------------------

Of course, this rule is hardly set in stone. The very next negative catalyst could break the cycle and send stocks lower for longer.

However, Cramer can't help but think the trend deserves attention. "After a 3 ½ day plummet, high flying stocks seem to get themselves back on track." Think about it.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book