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Jim Cramer knew that part of the market was becoming too hot to handle. All the froth in the biotech sector last week tipped him off, and despite all of the flack he received over it, on Friday he made a bold call to advise investors to not buy biotechs.
Sure enough, turns out the "Mad Money" host was right.
Now, he's making another bold call—the whole market is too hot to handle right now. He compared it to eggs on a griddle that is so hot that nine seconds delivers a perfectly cooked sunny-side up, but 10 seconds renders a burned mess.
"This week we're witnessing the results of a griddle that hot, too hot, a genuine inferno, and those eggs are now charred beyond all recognition," Cramer said.
In Cramer's perspective, he is seeing that the market leaders are retreating, especially in the biotech and tech sectors. Even the industrials are starting to pull back, thanks to a weak durable goods number released on Wednesday.
But what really freaks Cramer out is not the decline in technology or industrials. It is the biotech area that concerns him the most, because it is so overextended.
The "Mad Money" host thinks this is just a typical rotation, aided by the merger announced between Kraft and Heinz on Wednesday.
So what do you do next?
Chill out! Cramer thinks that sometimes you need to step to the sidelines and let the market cool off. Take the time to hydrate, and wait while a new rotation is created.
"We need to see the momentum names stop going down and even start to bounce before it's worth starting new positions in the groups that are a part of this conflagration. They will tell you what to do," Cramer added.
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Another important point that Cramer wants investors to know is that the analysts on Wall Street have become your enemy. Many of them have also been riding the momentum wave, and let everything ride. Now they are being put on the hot seat and feel pressure to do more downgrading, which will create an environment of panic.
So at the end of the day, the "Mad Money" host doesn't see any bulls that are worth following at the moment. The best leadership stocks are all in bear territory right now and need to cool off.
"Remember, the griddle does get too hot at times and when that happens, you need to take something off the table before it gets incinerated," Cramer said.