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Pin the Tail on the Sell-Off

Tuesday, 7 Apr 2009 | 7:33 PM ET

It’s a time-honored game played by headline writers and reporters alike, who scrape to find reasons for a sell off, just like the one we experienced Tuesday, with the Dow down 186 points, it was still off its intraday lows.

For any given sell-off there are numerous reasons anyone can give, but just because they make decent headlines doesn't make them true. Cramer points out that most of the reasons people have been giving for Tuesday’s sell-off – troubles in tech, IBM walking away from a deal with Sun Microsystems, fear in the oil market, speculation about where gold is headed, questions about whether Geithner’s plans are working or even fear over reports of first quarter earnings - simply miss the mark.

Cramer: Don't Let Selloff Scare You
Cramer advises investors not to be discouraged by today's negative action.

But what’s the real reason for Tuesday’s sell-off? Where do you pin the tail? Cramer says it’s simple: people are taking profits. He says that you’d be nuts not to take some profits after a 20% gain, even if you aren’t up for the year, it’s pure self-interest and smart investing.

As your personal trading and investing coach, Cramer says he wouldn’t be doing his job if he told you to stay the course, hang in with all of your positions and that buy and hold is all that matters. This is classic bad information, according to Cramer, as money left to sit in the market over the past decade wouldn’t have made you anything if simply left alone.

So what doesn’t fit in the headline? Cramer likes a baseball analogy. Sometimes players, sometimes whole teams, are simply due for a loss. Nobody bats 1000, not baseball players, and not stock markets, and today’s decline was a reminder that the easy money has been made, and we were simply due for a sell-off.

What would Cramer’s headline be? “Stocks after big rally were due for a fall,” although that would probably be a little too dull for most editors. Just to keep things in perspective, today’s volume was light, which just goes to show that the selling wasn’t very intensive.

Cramer’s bottom line: don’t be discouraged by today’s negative action, in fact, he expects more to come, as the Dow is still 1,400 points off the bottom.Stocks have moved up so far so fast that the only reasonable course for most investors is to take profits. It was due, and Cramer poses the question: wouldn’t you expect a brief sell-off after the greatest rally in 70 years?

Check out the video to see Cramer's full perspective on the off-target reasons why the sell-off occured.


Questions for Cramer? madmoney@cnbc.com

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