Mad Money

Big catalysts moving the market

Froth a bad sign: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

There are at some seriously negative catalysts in the market right now, and Jim Cramer believes before you can make money in stocks, you have to understand how they impact trading.

1. Many hedge funds have a negative bias. "With the averages having done nothing so far this year, and with the biggest move being that 6 percent swoon, the hedge funds that like to bet against the market are feeling emboldened," he said.

2. Persistent cold weather has created a negative backdrop for earnings. "Companies are routinely missing estimates because of the ," Cramer added.

3. Big momentum names have cooled down. broke down on a terrific quarter," noted Cramer.

4. Frothy stocks are leading the market. "Froth is a real bad sign," Cramer explained, "especially if it spreads from one or two sectors to the entire market."

5. China looks like it's a mess. Weakness in is battering commodities and natural resource names with no relent.

Adam Jeffery | CNBC

All told, these are some of the most powerful negative catalysts in the market; they threaten to drag down stocks at any given moment. These are also the catalysts that give bears the conviction to go short. And Cramer says bears are shorting stocks, as well as sectors and the market, boldly.

Now, here's the part that may not be intuitive.

Because of these negatives, the market can sometimes rally. In fact, they can lead to a sharp rally, the host of "Mad Money" says.

When these negatives don't drag stocks lower, short sellers get caught in a pinch. And they scramble to cover their short positions, fearing substantial losses.

That's called a short squeeze.

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Where does Cramer see opportunity?

"That's why the Dow Jones Industrial Average rallied by triple digits on Monday," Cramer said. "Given all of the weakness and the hand wringing about the slowing of global growth, most pros expected the market would take a real hit, especially with Crimea in the mix"

But the bulls prevailed, and bears were forced to cover aggressively. That, Cramer believes, may be meaningful.

"Now, we know that we haven't heard the last of Putin," Cramer added.

However, considering the threat of war didn't trigger a sell off on Monday, Cramer can't help but wonder if selling has subsided, at least for a while. That is, Cramer thinks the market has reached a new normal, at least for the time being.

"I don't know if stocks will rally from here, but in the absence of something more cataclysmic, there's just no need to be short either," Cramer said.

Call Cramer: 1-800-743-CNBC

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