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Cramer’s Playbook: What to Expect Ahead of Earnings

All good things must come to an end, Jim Cramer said Thursday on CNBC’s “Mad Money.” While investors tend to trade off of broad sector moves, reality sets in when earnings season swings around they get hit with the cold, hard facts of how these companies are really doing.

Stocks trimmed their losses at the end of topsy-turvy trading on Wall Street today, but the major averages were still lower across the board. The Dow Jones fell 24 points, or 0.2 percent at 12,602; the Nasdaq slipped 25 points, or 0.9 percent to 2,849 and the S&P 500 notched down 0.2 percent to trade at 1,329. On news of a canceled EU summit press conference, investors grew hopeful that European leaders were working to find a compromise.

“You can't invest in rumors,” Cramer said. So let’s focus on the facts instead.

He said today’s earlier sell-off had less to do with the “big bad” Obamacare decision and the lack of decisiveness in Europe, than it did with the onset of earnings, which are just around the corner.

With that in mind, the “Mad Money” host broke down what to expect from key sectors.

First off, the financials. Billion-dollar losses and scandals aside, we’ve seen no recent real activity from banks, Cramer said — almost zero M&A action, new stock issuance or trading. “That’s going to lead to huge number cuts for the banks, which will further batter the group.” Still, he suspects the domestic banks will be just “fine” — not great, because of the runs these stocks have already seen lately, but still better buys than sells if they see sharp declines.

“Get ready for some disappointments” from the tech space, Cramer said. Relatively speaking, even Apple’s quarter has been less than stellar, thanks in part to the gap between its iPhone 4 and iPhone 5. Stay away from techs unless you can handle the pain, he said, adding that Europe is the second or third largest market for most of these companies. “[Tech] hasn’t yet fallen low enough to eliminate the risk.”

As for oils, they’ll be “downright disastrous,” he said. Top managers in major oil companies are coming from a quarter where oil was at $100 a barrel and going into one where prices are now hovering around $78. Cramer said he would steer clear of oil stocks unless they had a yield of at least 3.5 percent.

And what about health care? In this instance, the ratification of Obamacare will be “extremely helpful,” he said. Many companies were withholding their guidance until the Supreme Court ruling became clear, and now that it has, Cramer thinks it’s “bullish for everyone in the space.” He would buy health-care stocks now.

Retail stocks “have been hammered beyond belief,” and Cramer thinks that that while the firms may not deliver great numbers, we could see some “terrific” turnaround stories because of falling gasoline prices. Ken Powell, the CEO of General Mills, also said he was coming out of the worst commodity spikes in 30 years. “The future’s much brighter than the past,” Cramer said.

And lastly, the industrials. “I don’t know many industrial companies that aren’t huge in Europe,” he said. Any insight these companies will provide will be inextricably linked to Europe’s future — one thing the markets are very uncertain about right now.

The bottom line: “The big bad health care event is now behind us, and we’ve got some certainty,” he said. “But now the focus will be earnings, and we’ve got a real chasm between the good and the bad.”

When this story was published, Cramer's charitable trust owned Apple.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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