Stop Trading!: Friday's Market Turnaround Explained

Friday, 5 Sep 2008 | 3:36 PM ET

The market rebounded after an early session decline due to a higher-than-expected unemployment number. Cramer attributed the gains to an end in redemption-covering stock sales by hedge funds.

Investors in underperforming funds want their money back, Cramer said, so managers have been selling their holdings to raise the necessary money. Hedge funds usually have five days to return money, and “that finished today.”

Apache, Transocean, Mastercard, Potash, Union Pacific – “You saw all these names bottom today,” Cramer said, “because…the selling’s done to return the money.”

Stop Trading, Listen to Cramer!
Mad Money host Jim Cramer shares his stock picks with CNBC's Erin Burnett

But that “doesn’t mean that we aren’t fundamentally in trouble,” Cramer said. “There are fundamental problems with everyone of those stocks,” so this isn’t a reason to buy. He just wanted to offer a reason to the market action Friday.

Cramer called the downgrades of Merrill Lynch and American International Group “two of the worst calls that I’ve seen in a long time.” He has little doubt that there are more write-offs coming from Merrill, but the company raised capital enough for his to think it’s a buy at $22 or $23, though he said that probably won’t happen. And AIG, in addition to Lehman Brothers, is usually a stock that declines ahead of others when there’s bad new, like today’s unemployment. But neither stock is down.

In fact, and admittedly Cramer was going out on a limb here, he named Lehman his “screaming buy” for the last couple of hours of Friday trading. It “can’t get any worse there,” he said. “If that Dick Fuld does not do something this weekend, he name is mud.”

Cramer also reiterated his warning against trading hurricanes. He also believes that natural gas, which has fallen much further and faster than oil, is trying to decouple from it. “Nat gas is trying to put in a bottom,” he said, at about $6 or $7. Anadarko Petroleum is buying back stock – something he always likes – and Apache is “right.”

Lastly, Cramer talked up retail. Sears Holdings is down after a critical article in The Wall Street Journal, but not as much as Cramer thinks it should be. “That tells me it’s OK.” But look at Home Depot, Phillips-Van Heusen and Urban Outfitters.

“Why aren’t these down if retail’s so bad?” Cramer asked.

Questions for Cramer? madmoney@cnbc.com

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

  Price   Change %Change

Contact Mad Money

  • Showtimes

    Monday - Friday 6p ET
  • 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.