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The Investing Dangers of a Mixed Market

The economic outlook right now is mixed, Cramer said during Thursday’s Mad Money. Not incredibly bad, not incredibly good, just mixed. But, of course, that hasn’t prevented people from trading on every data point as if it carried enormous importance for stocks. And during probably the least consequential time of the year for the markets at that, late August.

Investors this week have jumped from existing-home sales to new-home sales to durable goods to jobless claims, and Cramer thinks that Friday will see them swinging from the gross domestic product report and comments from Federal Reserve Chairman Ben Bernanke, who is in Jackson Hole, Wyo., for the central bank’s annual confab. Regardless of what the numbers are or what Bernanke says, Cramer expects the market to overreact.

The problem with these data-inspired sell-offs, though, is that we don’t actually have enough data to justify them. The Chicago and Maryland Feds say positive things one day, the Philadelphia and New York Feds say something negative the next. Urban Outfitters reports a strong quarter, and then Guess follows with a bad one. Aerospace, thanks to Rockwell Collins and Heico , is up, medical equipment is down because of Medtronic . But since only MDT has reported, the sell-off is again an overreaction because there isn’t enough evidence to refute the company’s report.

"Put simply," Cramer said, "there is not enough information out there to warrant the big swings or big moves like we've had this week. Yet we are trading on every little data point, be it macro or micro."

Sure, you could make an argument that the spate of takeovers we've seen bode poorly for the market, as they often indicate a top. But at the same time the could be seen as good because they mean stocks are undervalued. And one could say price-to-earnings multiples are so low that it's tempting to buy stocks because they look cheap based on their future prospects. But one could also say that the housing, durable goods and GDP numbers indicate that the estiamtes are too high and those P/Es are wrong, meaning we're paying too much for stocks.

In the end, it all comes back to Cramer's idea that things are mixed. Certain things may sound actionable, but it doesn't mean they are. And when we jump to conclusions, we're probably going to be wrong.

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