Mad Money

Cramer’s market mechanics: Seeking the bottom

Bottoms not always easy to spot: Cramer

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

On Wall Street, pros are chattering about the market's price action on Tuesday and whether it was a sign of a bottom.

After all, the session started with a sharp decline but then stocks rallied, broadly, into the close.

Was the intraday reversal meaningful?

Before you draw any conclusion, Jim Cramer says it's important to revisit exactly what happened as the market turned. Here's the breakdown of important events.

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"At 12:58 the Biotech ETF, or BTK, which had been in slow decline made a sudden pivot and rallied convincingly," Cramer said. "Then almost exactly at 1:02 p.m. the and the S&P 500 both bottomed simultaneously, in what looked to be within a few seconds of each other." Also, "Trading in the TLT, peaked at 1:01 p.m., approximately one minute before the S&P and the Nasdaq Comp bottomed.


Here's the sequence again: "At 12:58 p.m., the Biotech index stopped going down. At 1:01 p.m. bonds peaked for the day. At 1:02 the S&P 500 and the Nasdaq pivoted and roared," Cramer said.

The corresponding charts are below.

Although events may simply be coincidental, Cramer doesn't think they are.

That's because, at the same time as the events outlined above, Cramer said the market became keenly aware that Twitter had tapped Google executive Daniel Graf, as its new vice president of consumer product.

"Do not minimize the significance of that announcement. 45 million shares, or 40% of the current float of Twitter, are sold short," Cramer said.

That news was enough to generate short covering.

And when the short-covering began in Twitter, the gears started turning first in tech, then in other areas of the market, with a ripple sweeping across the market at lightning speed.

Ultimately, Cramer believes the moves illustrate the vast influence algorithms wield over trading and how rapidly they can move stocks but that's not necessarily a sign of a bottom.

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Therefore, Cramer says proceed with caution. If Tuesday's reversal were truly a bottom, the market would have bounced due to "some positive news from the left and some upgrades from the right."

"I've scanned the headlines for anything that could have caused that pivot and I couldn't find anything fundamental to support it. "

Instead Cramer believes the moves were merely mechanical.

"The reversal was due to the algorithms and nothing more. As a result, I'd be reluctant to make a judgment whether the selling, at last, is complete."

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