Mad Money

Cramer: Was This a Bad Rally?

Cramer's Take on Market Rally

As stocks snapped a six-day losing streak on Thursday, Cramer wondered if this was a good rally or a bad rally.

It might sound crazy, but there are bad rallies, Cramer said. Those types of rallies are ones, which you want to sell into instead of holding out for higher prices. But it remains to be seen what we saw on Thursday, he added.

Good rallies are based on fundamentals or news that supports the bullish case. Right now, the economy is experiencing a soft patch that's arose thanks to short-term concerns, like high oil prices, an economic slowdown in Japan following the natural disasters and a delay in the U.S. housing market. These issues have led to disappointing job growth, which powers the overall economy. Should oil prices fall, Japan goes back online and foreclosures decline, the soft patch could go away.

If you believe the soft patch theory, Cramer said you didn’t like Thursday's rally and should be selling here. That's because for good rallies to happen, the market needs real changes in facts that caused the soft patch. But we didn't get lower oil prices. There are no signs of job growth. We did, however, get some signs Japan is coming back. The low trade deficit numbers showed that Japan did some real damage to the U.S. economy. Copper prices have been holding and it seems like lumber has hit a bottom, so maybe Japan will come back online soon.

But we didn't get enough good news, Cramer said. That's one reason this rally was bad. We need signs the soft patch is over and nothing we saw was sustainable, he argued.

"We didn’t get any change in the facts at all today, so I’m inclined to think that we could simply be having a trading rebound and not much more," Cramer said.

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