Jim Cramer is starting to see the same pattern play out in the market lately, and he wants investors to be ready for a big change when employment numbers are reported on Friday.
With each company that reports disappointing earnings, stocks still manage to rally. It seems investors recognize they were bad, but not so bad that it causes a panic into selling.
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It was particularly evident in the industrials, banks and oil stocks to Cramer. For instance, Emerson Electric reported a very disappointing quarter on Tuesday. Its CEO, David Farr, even took away future hope when he said he expects difficult market conditions for the first half of 2016.
Apparently, that news wasn't awful enough to attract sellers, though, because Emerson Electric rallied almost 3 percent Tuesday.
Cramer saw the same thing happen at the beginning of earnings season when Goldman Sachs and JPMorgan reported weak quarters. Sure enough, Goldman is up 16 straight points since the quarter. It turns out these were tremendous buying opportunities.
"Why? Again, I think this was the quarter where investors finally decided that even without the Fed raising rates, the banks are just too cheap, and if the Fed ever gets around to taking action, then the group will rocket higher," Cramer said.
The most amazing moves of all have been in oil. The group was written off, left for dead and heavily shorted going into earnings season. And while some of the smaller oil companies are struggling, the big boys like Marathon, Exxon and Chevron have all hit levels that were inconceivable just a few months ago.
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How the heck is this possible? While Cramer recognizes that some of the rallies are due to portfolio managers underweighting the industrials, there is also something else at work here. Investors have noticed that the Chinese consumer is getting stronger, Europe is turning and the U.S. has a strong market in housing and autos.
"In other words, the big worries are dissipating, and yet, the Fed's not about to have an emergency meeting to raise rates one week after it chose not to," Cramer said.
That means these down and out stocks are now attractive. The big question remains — how long can it last?
Cramer thinks this can continue right into Friday's employment number, and then some of the groups will pause.
If there is a strong number, then the Fed will likely move in December, which will send bank stocks higher and prompt other groups to stall. A weak number could trigger a need for safety, and these new ugly-duckling stocks could be sold off.