Understanding the Micro and Macro Views
Investors need to take both the micro and macro into account to fully comprehend the market, Cramer said Tuesday.
The macro is the big picture, like the debt of a country of the direction of its currency. Those who only worry about the macro don't care about stocks other than as a commodity they can trade, such as copper or cotton.
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"When they get negative inputs, like we've had from Italy, where investors and short-sellers are alternately fretting and salivating over a potential run on the Italian central bank, these macro focused traders blast the S&P futures down," Cramer said. "Just like they are selling big bushels full of wheat or corn."
So it's not so much that individual stocks that get hammered, as it is the S&P 500 futures. They don't take the time to go through individual companies. Instead, they will determine that they don't like the entire U.S. stock market because earnings could be hurt by a worldwide slowdown caused by an Italian debt crisis, for example.
The micro includes things like earnings and sales results of individual companies.
"You can day trade, trying to predict every tiny little shift of weight and attempting to profit from it, but I think that's too hard, and I used to be a hedge fund manager, specializing in these short-term moves," Cramer said. "Or, better, you can step away from the day to day seesaw, which is what this device really amounts to, and focus on the fundamentals of great individual companies, while tempering that conviction with the discipline of recognizing that the one piece of bad macro news can pull down the entire market, giving you a chance to put your convictions to work buying high-quality stocks."
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