Any time Jim Cramer sees a day like Tuesday, where the averages start out the day getting hammered and then come roaring back, he wants to know what the heck is driving the psyche of the market. When you know what is driving the tape, then investors can get their favorite stocks at the best prices.
"I like to judge a market based on how stocks react to earnings. If they go higher on better than expected numbers and raised guidance, then I know the market's behaving rationally," the "Mad Money" host said.
This was the case with PVH Corp, which roared on terrific numbers on Tuesday. Or how about Cracker Barrel? This is one restaurant chain that is directly correlated to lower gasoline prices, and it keeps on winning.
But the trick to the market is that it is not just about earnings. Cramer also likes to watch how stocks react to news. This was a mixed session on Tuesday, as Cramer saw that the auto industry announced fantastic numbers and the stocks failed to react positively. Geez! One would think that at least Ford, Fiat and GM would hit the gas.
Cramer also likes to watch how interest rates impact the market. He sees that, these days, investors are actually rooting for higher interest rates because the largest group in the S&P 500—the financials—desperately need them to go higher in order to meet earnings targets. Thus, when Cramer saw rates shoot up this morning, he was encouraged by it.