Cramer said that economic news doesn’t have to be positive for the market to post significant gains. Case in point: A two-day rally Thursday and Friday in which the S&P popped 3.6 percent.
“We got that rally because Spain’s economy, as represents by its national bonds, were cratering, and taking the euro with them,” he said. “We were at the point where no one could think of a way to stop the car from smashing into the wall. Or so we thought.”
What happened was that European Central Bank head Mario Draghi made comments on Thursday that halted the slide and prevented a crash.
Then, German Chancellor Angela Merkel supported the ECB’s efforts to save the sovereign bond markets, giving the rally a second day of positive movement.
“In other words, we got a rally based on no good economic news, just talk,” Cramer said. “That’s how it happens. But how can it continue? How can the car keep going forward? For that to happen, we need to see some concrete events.”
Cramer said a few issues created a path to profitability that resembled a gauntlet.
Among the challenges:
- Federal Reserve Chairman Ben Bernanke needs “a novel plan to stimulate growth through hiring and lending,” Cramer said.
- The ECB needs “a unified and concrete plan” that includes Germany.
- Friday’s employment report could present a third obstacle.
So, where do investors go from here?
Cramer said that it was important to acknowledge that the best part of the market’s upward trajectory may have been made.
“Second, we have to acknowledge that the leaders of our stock market are actually the stocks that say we will not get through this gauntlet,” he said, adding that market leaders have been such defensive names as Coca-Cola, AT&T and Wal-Mart.
“Can stocks go higher without anything good happening in the economy? Do we need positive economic news to go higher? The answer is no, not initially,” Cramer said.
Sure, words can stop the vehicle from going in reverse, but Cramer said that talk has taken the rally as far as it can.
“I think the odds favor that the serpentine is too hard to get through without bumping the cones,” he said. “I think you take advantage of the huge gains we had last Thursday and Friday an ring the darned register to raise some cash, selling companies that reported poor earnings but rallied anyway because they were taken up as part of a broader market move.”
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