Earnings season starts next week, and despite the fact that most investors seem to think that only the Fed matters, Jim Cramer knows that corporate sales and earnings are key.
"12 weeks a year — the three weeks each quarter that I regard as official earnings seasons — can matter. Consider them the playoffs and all the rest are just regular season games," the "Mad Money" host said.
With this in mind, Cramer shared his game plan of stocks and events that he will be watching next week:
Monday: ISM non-manufacturing report, The Container Store
ISM non-manufacturing: Just as Friday's soft nonfarm payroll number mattered to Wall Street on Friday, Cramer will be watching for the ISM non-manufacturing number. In fact, he considers it to be the lone number that has remained strong. The U.S. is a service economy, so if it shows a slowdown, it could be completely nuts for the Fed to even consider tightening.
"You know my new view, though: the Fed has to fish or cut bait. Either raise rates this month or shut up about them until next year. Anything else is just torture," Cramer said. (Tweet this)
The Container Store: Cramer is watching this one because it's one of the biggest disappointments out there. Can it pull a rabbit out of a hat? Cramer's not a fan of the stock, but it has now gone so low that maybe at last there could be something positive to say.
Friday: Stratasys shareholder meeting
Cramer thinks this 3D-printing company is among one of the most disappointing stocks of this era. 3D was once a craze, as there was so much excitement around it that the stocks kept driving higher. Then, it ended suddenly, and shareholders were left whimpering. This story reminded Cramer of what is happening with GoPro and Mobileye.
"It's a cautionary tale that must not be overlooked because it's pretty much what this market has become for so many highfliers," Cramer added.
Ultimately, investors should brace themselves for a busy week. Despite the recent turmoil in the markets, earnings do matter. They always have, and they always will and next week is the playoffs for earnings.
Cramer does not get up out of bed at 4 a.m. every day just so that he can dish out the hottest stock picks to the "Mad Money" audience. He does it because he is passionate about educating investors on the ultimate insider's perspective for the market and how to make money.
"What I'd really like to do is empower you, and that starts with me teaching you all the many tricks I use to pick out great stocks and trade them like a pro," Cramer said.
These are the same methods that have served him well for his four decades of investing, and allowed him to generate a 24 percent annual return at his hedge fund.
So what does the "Mad Money" host look for when picking a stock?
One of the easiest ways for Cramer to identify the stocks that should be on his radar is to look at the new-high list. These are stocks that hit a new high in trading for the day, especially on days when the market is in bad shape. If it is hitting a new high on a down day, then obviously it has something good going for it.
However, that doesn't mean Cramer recommends chasing after every stock on the new-high list. That would just be completely ridiculous. The list is merely meant to be used as a jumping off point for stocks to start looking at. Then, the time tested method of doing your homework comes in to play, to ensure that the fundamentals of the company are sound.
So, now that you know the basics of how Cramer picks a stock, what if you really, really, really want to buy a stock that is hitting a new high?
Cramer has one exception to his rule, which is that if you see insiders buying a stock when it is already up a lot that is a green light.
"It's a rare thing to see happen, but in my experience it is rarer still that this method of picking stocks doesn't work out," he added.
When insiders are getting in on a stock, it is a great sign that they have confidence that the stock is about to take off, or that it will be long lasting.
Keep in mind that most insider trading in small quantities is meaningless. Sometimes an insider will start buying stock because they want to give the impression of confidence. That is why when there is a colossal amount of buying, then Cramer wants you to take another look at the stock.
However, Cramer warned that these signals alone are not a good reason to buy a stock. At the end of the day, there is no avoiding doing the homework on a company. That means checking the fundamentals and making sure the company has a story that you can get behind.
In Cramer's opinion, knowing proper strategy for trading will make you a better investor. That is why it is so important to know how to trade around a core position.
So, what does it mean to trade around a core position? Cramer outlined the steps below.
First, pick a stock that you both like and believe will go higher in the long term. Think of a company with solid fundamentals that can stay strong when the market becomes volatile and will go higher with a little patience.
Cramer recommended establishing a position in the stock through buying in increments. Buying it all at once is just plain arrogant, in his opinion. However, he does not want investors to feel discouraged that only professional traders can trade. Home-gamers can make money, too, if trading is done right.
If you wanted to start trading on your core position, then every time the stock jumps 5 percent, you should sell 25 shares. Keep shaving a little off the top to bring in some profits. This is called scaling out of a stock, though Cramer always likes to keep the last 25 shares if he loves the stock.
Then you wait until something happens to the stock that knocks it down to the same price when you bought it initially, as long as the news isn't specific to the stock. Then when the stock comes down, you start to buy it in increments again.
This might appear to be small potatoes, but over time the profits add up. Up 5 percent and sell 25 shares, then buy it from where you started; the cash in your pocket will start to accumulate.
"I want to talk about selling, which, along with when you buy, may be the most important and undervalued tool in your home arsenal," said the "Mad Money" host.
So, how do you know when to sell a hot stock?
Just like when you attend a party, you have to know when it is the right time to leave. When dealing with stocks, there is a lot of money to be made by owning a hot stock with a lot of momentum. The trick to making the most money is to know when it's time to get out.
A trick that Cramer uses is that once a hot stock has at least six analysts covering it, then the love may die down for the stock. That's because it is about to be too big and too well known, and the stock cools off when everyone who was interested in buying it has already done so.
"This formula has worked for me as long as I can remember. As far as I can tell, it works because the number of analysts on a stock is a good gauge of how much awareness and interest there is in a name," Cramer said.