1. Investors are banking a little too much on a Republican sweep of Congress, but there’s no guarantee that will happen. President Obama is still popular, the Democrats are well-financed, and some of the Tea Party candidates running for Senate are downright “kooks,” Cramer said. Therefore, some weakness in stocks ahead of the midterms next week might have offered a buffer in case the elections didn’t go as expected.
2. The Federal Reserve’s QE2 plans, its attempt to stimulate the economy, is already baked into stocks. That means the central bank would rally have to do something drastic—like buy S&P 500 futures—to move the needle. Of course, that won’t happen, leaving too much room for the Fed to disappoint.
3. Eventually the market had to stall out, right? After five straight days of gains, how much higher could it go without a pullback of some sort?
4. Wednesday’s pullback also made sense because while most days have cross currents, today saw “genuine non-cross currents,” Cramer said. Oil fell in response to the stronger dollar, but there was also a rise in crude inventories. So the commodity’s price should have fallen anyway. “Typically, the actual fundamentals have not mattered in this market,” Cramer said.
5. The intraday losses also offered a counterweight to some winning stocks like Broadcom and F5 Networks . Whirlpool dropped 4 percent, Jones Group lost 22 percent, and Sprint took a hit as well—for good reason: They all reported disappointing earnings.
6. Big international companies like Caterpillar , Boeing and United Technologies need a weak dollar to keep generating strong earnings. It’s their edge, Cramer said, and they’re going to dip on days like today when the greenback gets stronger, though they still closed well above their lows.
7. Some profit-taking ahead of Thursday’s important unemployment claims number would have made sense, too. Could investors really assume the number would be good, thereby sending stocks even higher? Or was a pullback of some kind the safer bet just in case? Cramer thinks the latter.
8. There are too many bulls in this market. The bull-bear ratio is now at 45.6 percent, and Cramer’s uneasy about anything north of 45 percent. The better scenario involves lots of bears, bears that can be converted to bulls, who then take the market up with their buying.
9. A bigger drop in the share prices of Netflix and Chipotle would have provided some much-needed near-term fuel for the stocks, something that’s lacking as the shorts who once bet against them have started to buy. Short covering accounted for the last $10 in both of these names, so the meager gains seen today—with NFLX up just 88 cents—could be seen as weakness.
10. And the last reason Wednesday’s intraday sell-off made sense is because mutual funds are finishing their fiscal year. That means they’re taking profits to boost their numbers before the end of the month, especially as tax laws are supposed to change in 2011.
What’s the trade then given all of this? Buy the banks, which were the one group that actually finished up. (That and tech stocks on a pullback.) Now that the Treasury Department has said there is no systemic risk in these companies being forced to buy back certain mortgage securities, Cramer thinks the group has bottomed.
“The foreclosure story knocked billions of dollars of valuation off these companies,” Cramer said. “I first mentioned this yesterday with US Bancorp. That was the leader here. I think the rest will follow.”
When this story published, Cramer’s charitable trust owned Boeing.
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