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Cramer Remix: Beware! How China's fall impacts US

This week was absolutely horrendous, as Wall Street went into chaos on Friday with the averages plunging to lows not seen in years. According to Jim Cramer, this week was so tough because major big picture issues are still in charge.

Investors were stressed, wanting to know if the Fed will move or not, will emerging markets roll over and spill into other countries and is there a big default lurking in metals in oils that they haven't thought about?

The Shanghai Stock Exchange has moved to the top of Cramer's list, and has become the first thing he checks in the morning. According to the "Mad Money" host, the Shanghai Composite must stay above the 3,500 level. Otherwise, investors worry that China's nine-month rally could be reversed.

It seems to Cramer these days that "ours is not a reason why, ours is just to sell or die," has become the motto of the market. And if the Shanghai Composite continues to get crushed, then the U.S. market will continue to get hammered along with it.

"My suggestion to whoever's running the bureau of higher stock prices over in China right now? Let the market come in a little bit every day for the better part of a month or two. The gentler the slope, the less damage," Cramer said.

With this in mind, here are the stocks and events that will be on Cramer's radar next week:

Tuesday: Best Buy, Toll Brothers
Best Buy: Cramer will be waiting to hear what this company has to say about GoPro, cellphone and Apple Watch sales. If it has anything positive to say, and assuming China isn't a disaster the night before, this could give investors a chance to buy some Apple.

Friday: Personal income & spending data
Cramer is hoping to see both data points come in moderate so that the Fed might declare September a rate-hike free zone. Investors need to have weaker economic news just to keep the Fed from wreaking havoc with a rate hike.

"Let the extraneous overseas markets create some bargains in the stocks of companies that I expect to do well. Or keep your bat on your shoulders," Cramer said.

Read MoreCramer's game plan: Sell or die—market's new motto

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Cramer has always hosted "Mad Money" based on the idea that it is possible for individual investors to make more money investing themselves than they would by hiding their money in bonds, index or mutual funds.

"The pundits and commentators say it's too hard, that ordinary people can't invest for themselves and shouldn't even bother trying, but I know from experience…that you can do it as long as you're willing to put in the time and effort," Cramer said.

One of the worst myths out there is that the market is always rational and makes sense. Cramer knows this is not true; on any given day the market can be totally wacky for reasons that do not make sense. Sometimes stocks go up when they should have gone down, and sometimes entire sectors move for ridiculous reasons.

"Never assume that just because something happened, it has to make sense because the market is always supposed to make sense. That's nonsense," Cramer added. (Tweet This)

But regular investors will see the selling and start to panic, dumping stocks in turn. Ultimately, this will trigger a selloff, and the media will try to cook up reasons all over the place to explain why otherwise stable stocks went down.

"The worst mistake, the most common mistake you can make these days, is to say that because a particular stock or commodity trades at a given level, it therefore deserves to trade there. Often, that is just fiction now," Cramer said.

Read More Cramer: Worst mistake you can make in a selloff

When there are huge losses on the market, investors have the opportunity to buy good companies with stocks that have taken a beating because of the market. Cramer's motto in a downturn is "buy broken stocks, not broken companies."

But in a marketwide correction where everything under the sun is sold off, how do you know the difference between a broken company that's not bouncing back and a broken stock?

That is exactly why Cramer recommended that when you are in the middle of a selloff, the first thing to do is to look at the companies that caused it—they are probably broken.

"If you're looking at a company that is part of the reason for a correction, you're looking at a broken company. Those are directly in the blast zone and certain to be obliterated," the "Mad Money" host said.

Read MoreCramer: Avoid these horrifying stocks in a selloff

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The first step to conquer a selloff is to circle the wagons around the stocks in your portfolio that you really like, and then leave the ones that don't inspire you in the dust. The "Mad Money" host thinks it is a good idea for investors to know the difference between a damaged stock and a damaged company when hunting for bargains during a selloff.

"A correction is just a megasale on stocks—no different than what you might find on all kinds of things at your Sam's Club any day of the week," Cramer said. (Tweet This)

After those steps are covered, it's time to get into the nitty gritty of the specific types of stocks that Cramer scoops up during a downturn. And the good news is that the more brutal the selloff is, the more attractive these stocks will look.

First, Cramer likes to look for stocks that have pulled back from their highs during the selloff. The new high list is always a great place to start looking. But stocks on that list also tend to be expensive, which is exactly how a big decline helps.

The second kind of stock that Cramer looks for during a gigantic selloff is the type with dividends that become more attractive as their share prices go lower. So, just as the 52-week high list is useful for stocks on a downturn, also keep a shopping list of stocks you would buy if only their dividends were a little higher.

"I know dividend investing isn't sexy, but believe me when I tell you that nobody ever woke up unhappy the next morning after bringing home a stock with a big dividend," Cramer said.

Read More Cramer: Brutal selloff makes these more attractive

"When money is flowing into stocks, with the mutual funds buying in endless waves and the hedge funds desperate to won stocks rather than shorting them, then you're in the land of the thousand bull dances and you don't have to worry about where the fuel for a rally is going to come from," Cramer said.

However with no money flowing into the market, Cramer has seen that powerful moves in stocks and sectors can occur. This is because when investors are reluctant to invest, money will be pulled out of the least exciting groups of stocks, and rotates into sexier names with more lift.

But here is the problem with rotations: Without new money flowing in, gains often become zero-sum and will run out of fuel. The leaders will run out of steam with nothing to drive them higher, and that's when the worst possible rally can occur—a rally in the wrong stocks.

He also recommended exercising caution when you see defensive food and drug names rallying as well. Often just taking note of sector leadership will give you a strong read to determine if it is a sustainable rally.

In the meantime, Cramer recommended looking for opportunities to buy high-quality names where the stocks—not companies—are broken.