Making Sense of Tuesday's Decline
The Dow Jones Industrial Average pulled back 140 points Tuesday, erasing some of the gains from the past week’s rally. Cramer started his show explaining to viewers why it happened and how they should play it.
Oil and natural gas, he said, might finally be at a level that could attract demand. Cramer had been predicting that the price per barrel of crude, now at $113, would even off in the $110 to $120 range, putting fuel for autos at around $3.50 a gallon. Cleaner natural gas at $8 costs about as much as dirty coal at this point.
Then there’s the downturn in the banks. Analysts point to weak earnings and tough equities markets, while the Securities and Exchange Commission is easing up on its enforcement of key short-selling rules, those that keep bear raids at bay.
Cramer’s suggestion: If you don’t already own an oil and a bank stock, start buying into Wednesday’s raiding – and he’s confident there will be plenty of action from hypernegative hedge funds. (The rails, too, could get hit, he said.)
As much as 40% of the gains we’ve seen could be given back before the market turns up, Cramer said. So be prepared for that if you plan to buy in immediately. Otherwise stick with recession stocks.
Oh, and “banks are not any safer than their weakest link,” Cramer said, whether we’re talking about Washington Mutual, down 10% Tuesday, or Downey Financial , down a whopping 25%. Keep this in mind as you do your investing homework.
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