Jim Cramer has survived so long on Wall Street for many reasons, but the most important one is because he sticks by his rules of investing. One of his top rules is discipline trumps conviction.
"Rules that have kept you out of trouble have to be obeyed. Which is why, despite the pullback today…I can't pound the table on buying anything, because the S&P oscillator that I've followed for decades is now in overbought territory, which tells me we are due for some pain," the "Mad Money" host said.
The Standard & Poor's oscillator is an indicator that Cramer follows, which is a short-term measurement of current market sentiment. It is typically used to indicate how overbought or oversold the market is.
Right now, Cramer sees that the market is linked to three specific inputs. Stocks have tended to go higher if these three inputs are in the bulls' favor: a weaker dollar, higher oil and a stronger Chinese market.
"Now, let me say from the get-go that I may not necessarily agree that these inputs should cause a rally," Cramer said.
Historically, when the oscillator hit danger zone levels, the risk has been too high and the reward too low for Cramer to buy stocks.
"While I have tremendous conviction that the inputs are positive, which would mean you should be buying high quality stocks that you think are undervalued, my discipline nevertheless says hold off, because a better, lower level is coming," Cramer said. (Tweet this)
It is official, until this market goes lower or works off its oversold condition — Cramer is staying on the sidelines. Maybe he will take some profits for his charitable trust, but until that oscillator drops back to lower levels, he won't be pressing the buy, buy, buy button on his for a while.
With oil's third-quarter roller coaster ride, Jim Cramer turned to the charts to find out where it could be headed.
"Remember, I think the rebound in oil from its late August lows has been a major driver in the epic rally in our stock market, so it's imperative that we get a sense of where oil is going, particularly in the wake of yesterday's nasty pullback," the "Mad Money" host said.
So, Cramer turned to two technicians to read the charts and put the oil market into perspective. The first was Carley Garner, a technician and expert on commodities who is the co-founder of DeCarley Trading and colleague of Cramer's at RealMoney.com.
At the moment, Garner is hearing bearish chatter about oil all over the place. But in her perspective, the things the bears are focused on aren't exactly a surprise. Thus, the bearish view in oil is pretty much baked in, so the path of least resistance for crude is likely to be higher.
Next up, Cramer spoke with Carolyn Boroden, a technician who runs FibonacciQueen.com and is also a colleague of Cramer's at RealMoney.com. Boroden believes that the lows of oil back on Aug. 24 were extremely important and could represent a real bottom.
In the long term, Boroden thinks that if the August low holds, then oil will work its way back up to $70 or even $80. The key to this is that it will eventually work in that direction, because in the near term, Boroden thinks it could be time to be more cautious.
It is almost as if overnight the most hated group of stocks, the oil stocks, has suddenly transformed into the most loved. So, with technicians on board predicting the price of crude to be headed higher, Cramer took a look at some of the best stocks in the oil patch that could give investors exposure.
One company that has actual exposure to the price of oil is Occidental Petroleum, an oil producer with a 1.4 percent yield and a nice stream of income, with downside protection in case the stock goes lower.
"That dividend makes owning this company seem like a much less daunting prospect. In fact, Occidental is my favorite yield play in the oil patch, which is why it's one of the largest positions in my charitable trust," Cramer said.
However, a big fat juicy dividend is never a reason to buy any oil related company. Not all dividends are created equally, as a high yield can often be a red flag. Cramer specifically likes Occidental because of its balance sheet and strong assets, with a shareholder friendly agenda.
Even though the biotech group continues to be out of favor for Wall Street, Cramer has still seen a wave of biotech initial public offerings (IPOs). And believe it or not, some of these companies new to the tape could represent a terrific opportunity.
That is why Cramer updated investors on a few of the new IPOs in the biotech space, so they know what to look for and what to avoid when evaluating a newly public or about to be public stock. First up was CytomX Therapeutics, a $430 million biotech company that came public last Thursday.
However, when Cramer researched further he found that while CytomX may have intriguing technology, it is possibly the most developmental of the developmental stage biotechs. If CytomX had drugs in actual Phase 1 trails, Cramer would still think it was insanely speculative. It could be a game changer, but until the clinical trials start, this stock is too much of a lottery ticket for Cramer's taste.
Cramer also heard investors discussing the weak data that came out of China as the reason for its market's hideous initial decline on Tuesday, and thinks that is just plain wrong. There were actually two sets of Chinese numbers; import numbers were weak, but the export numbers were strong.
China's slump from September was confirmed when it reported worse-than-expected imports, down 20.4 percent. This was astounding to Cramer. However Chinese exports were down just 3 percent, which made sense to Cramer given the government's attempts to reinvigorate its domestic consumer spending economy.
"First, we have to ask ourselves, it is really a shock that imports are down in the People's Republic? Isn't that what this index I'm always talking about, the Baltic Freight index…has been telling us over the past few months?" the "Mad Money" host asked.
It was the export number of just 3 percent that stood out to Cramer more. It told him that the Chinese consumer economy may be in better shape than most think. It indicated that China could be getting stronger.
"But this morning we got what I've really been waiting for, a resumption in rising car sales after a three-month decline," Cramer said.
In the Lightning Round, Cramer gave his take on a few caller favorite stocks:
B&G Foods: "I really like B&G Foods after making that acquisition of Green Giant. Here's the problem — the stock has not come in, and I think that's a mistake in this kind of market. Lots of stocks are coming in. When that gets to $33-$34, pull the trigger."
Whole Foods Market: "I think this might be the last bad quarter. I think there's like 10 percent downside and much more upside. So, I think you should wait until the quarter, because I think it's not going to be good, and then I think you should pull the trigger."