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Keys to a Continued Rally

The Dow trended down on Tuesday, Cramer told viewers, because all the wrong stocks went up.

Not that a loss of just 16 points is a big deal. But the action in certain stocks took the steam out of the rally we’ve enjoyed since early March. This trend needs to reverse, Cramer said, if we are to continue our move higher.

So what happened? Wall Street favored food and drug stocks today. Kraft reported strong earnings, and that set in motion a buying spree in Molson Coors – another earnings winner – Heinz and Campbell. The pharma firms followed closely behind, as Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb, Pfizer and Abbott Labs all rallied. So, too, did Celgene.

The problem is that the money generated from the massive selling of these stocks that we’ve seen for the past eight weeks had been pouring into oil, tech and the banks. These were the rally leaders upon which the market depended for the big move. Without cash flowing steadily into these names, the momentum petered out. Poor earnings from Chesapeake Energy didn’t help, either. Nor did Morgan Stanley’s downgrade of Anadarko Petroleum and Devon Energy. These two events killed an under-the-radar move by natural gas stocks that had been one part of the overall rally.

But it wasn’t all bad today. Research in Motion was up on increased earnings estimates, and Apple is still going strong. As are Amazon and Google. And late-day rallies in the coppers and the coals pushed us to a higher close than we otherwise would have had. Also, Disney reported a great quarter after the bell, so that bodes well for Wednesday’s open.

The bottom line, though, is that we need selling to return to the food and drug stocks in order for this rally to resume, Cramer said. Without broad-based support from retail investors, hedge funds and mutual funds, the upside won’t happen any other way.

Cramer's charitable trust owns Abbott Labs and Celgene.

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