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Cramer goes behind dramatic Nasdaq selloff

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

Jim Cramer is worried by the sell off in the Nasdaq. Really worried.

"Whenever you have a sell-off as dramatic as what we've been seeing in many Nasdaq stocks, there are often deeper forces at work," Cramer said.

At issue is the amount of money that went into growth stocks trading on the Nasdaq between 2011 and 2013. Because growth was hard to find during that period, "growth managers were very willing to buy companies with terrific revenue growth even if the company was not profitable," Cramer said.

In turn, the appetite for growth triggered a spate of IPOs, with the newly public companies also offering growth but not profits.

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That concept of growth without profits "is an integral piece of the puzzle. It's behind what's gone wrong here," Cramer said.

That's because, in early 2014, the economy showed early signs of significant improvement.

As a result, money managers rotated out of so-called momentum growth stocks (that had no profits) and put money to work in cyclical stocks that stood to advance on solid fundamentals; things such as higher profits.

Then to aggravate an already serious problem, "lock-ups started to expire," Cramer said.

That is, more shares of companies with growth but no profits came onto the market at a time when the appetite had started to diminish substantially.

"What we ended up with was a nasty situation," Cramer said. Selling prevailed with the Nasdaq making its largest decline in two years in early April.

Although Cramer is typically a buyer of weakness, he doesn't think this is a typical sell off.

"The Nasdaq decline is not about the fundamentals, it's about the mechanics of the market," Cramer said.

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And until the mechanics find some level of equilibrium, Cramer thinks the path of least resistance will remain lower.

"Not until insiders find levels they won't sell at, or a big slate of upcoming IPOs gets cancelled, or money rotates into the sector again, will the selling abate."

Until then, Cramer says there's no compelling reason to buy. And without buyers, the Nasdaq could be in a world of pain.

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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