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A massive invisible change freaking the market out

Cramer: Think like Buffett

After two glorious days in bullish territory, stocks closed sharply lower on Tuesday and the bulls fell right back down. Jim Cramer saw that investors were not worried about the direction of the move—it's the velocity that freaked them out.

"The market's back in selling purgatory because a couple of things are happening, and they are happening too quickly for many investors to comprehend. That doesn't stop them from taking action, though," the "Mad Money" host said.

One thing that is moving way too fast for its own good? Oil.

Investors are panicking now it that it has moved back above $60. Heck, just three months ago, they were in a state of terror thinking about the pending collapse of the oil patch. Now it is the total opposite.

Turns out all of those fears about the collapse of gigantic banks in Texas and Oklahoma never happened, the high-yield bond market stayed together and so did the oil companies themselves.

So, the worst fears never came true, and now it goes the other way.

Vincent Kessler | Reuters

Just as there were ramifications of the collapse of oil, there are ramifications of oil's dramatic surge. Specifically, inflation is the top concern now.

"It's not the price of oil that's really got people worrying. It's the darned speed of the move. The velocity of this rally has taken people by surprise, and whenever investors are caught by surprise they need to recalibrate," Cramer said.

So, what the heck is going through the brain of a worried seller?

First, they see the price of oil flare up and they start thinking that maybe interest rates should go higher to correspond to the inflationary pressure of oil.

Then, they start to worry that maybe things are so much better overseas and, since we are using so much oil right now, inflation is embedded into the price. And if that is the case, they think that the Fed will have to raise rates.

And if the Fed raises rates, that means investors will sell all the dividend stocks with high-yields because they won't be as worth as much in a high-interest rate environments. Then they'll dump growth stocks because the inflation will eat away at the long-dated assets and future earnings won't be worth as much.

Oy! Cramer's head hurts just thinking about it. And all of this because of a $1.46 increase in the price of oil!!

"I mean, how do we know crude won't go right back down by $2 tomorrow when we get the oil inventories report? Has oil become divorced from supply and demand in this country, or will this whole chain of woe just reverse itself tomorrow?"

The entire point of showing this panicked mindset is to illustrate just why stocks go down like they did on Tuesday.

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That is exactly why Cramer is subscribing to Warren Buffett's mindset of not judging stocks on a day-to-day basis. Instead, use the market's gyrations to get good prices on stocks that you like.

"I say, think like Buffett. The market's throwing a sale because the price of oil rallied the equivalent of a couple of pennies at the pump," Cramer said.

Instead, take advantage of the sale and buy stocks of high-quality companies you like. Just because the market is freaking out, doesn't mean you have to join in.

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