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Cramer: The Real Reason Stocks Fell Thursday

Published: Thursday, 12 Nov 2009 | 7:40 PM ET

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By: Tom Brennan
Web Editor, Mad Money

Why did the Dow drop 94 points on Thursday, and the S&P 500 slip 11? Because Congress cares more about health care than jobs, of course. Not to mention, people are worried about how the US will fund its oversized budget deficit. And retail sales, as demonstrated by what Macy’s [M Loading... () ] had to say yesterday, were a tad disappointing. Plus, weakness in oil and copper indicates a weak economy. Finally, housing is nowhere near a recovery.

Well, that’s what the bears had to say. But Cramer thinks they couldn’t be more wrong.

“It’s all alibis generated by pundits who are struggling to come up with meaningful headlines,” the Mad Money host said, “and sound bites to characterize the action.”

Think about it: Congress has been obsessed with the wrong issues as far back as early winter, when the much-needed stimulus focused on state and city handouts and not job creation. Today’s 30-year bond auction showed that the deficit, which has been big for years, could be funded at very low interest rates. And retailers are doing far better than anyone would have expected so soon after the crash.

Also, copper and oil have merely paused, following their big runs. They don’t signal an economic slowdown. (Forget about the fact that the Baltic Freight Index, a great measure of the world economy, was up big on Wednesday night.) As for housing, that industry has bottomed, Cramer said, and the worst markets – Florida, California, Arizona and Nevada – have been stable for months. Toll Brothers [TOL Loading... () ] verified the market’s high end just yesterday.

So what really happened?

“For the last six days … the market marched higher and higher and higher on essentially no news,” Cramer said. “We came up too much too fast. It happens. So we’re due for a pullback like the one we just had.”

Cramer uses the Standard & Poor’s Short-Range Oscillator to gauge these periods of overbuying and overselling. Under normal market conditions, the Oscillator reads minus five when investors are furiously dumping shares, which indicates that buyers are about to flood in. The opposite is also usually true. A reading of plus five shows that too much buying is taking place and pullback is almost inevitable.

There really wasn’t any news worthy of today’s losses. Jobless claims showed improvement, Walmart’s [WMT Loading... () ] earnings were strong, though oil was down. As Cramer said, “Two out of three ain’t bad.” He saw no reasons for investors to be scared, telling viewers that today’s action was just a normal market at work. In fact, they probably should have taken some profits themselves.