Mad Money

Cramer: Behind the miraculous pivot in industrials

Has fear fled the industrials?

When Jim Cramer took a look at the charts for many industrial and oil companies, he noticed something that they all had in common. All of these stocks were in an intense bear market until the last week of August and have all rallied furiously since then.

What the heck happened the last week of August?

"Simple. The Chinese stock market, which had been in free-fall since June — dropping from the 5,100 level to just below 3,000 — finally stopped going down," the "Mad Money" host said.

Since the bottom in the Shanghai stock exchange on Aug. 26, the Chinese market has rallied hard. It is up more than 15 percent and has taken U.S. industrial and oil stocks with it.

It's pretty amazing that this one index could have that kind of power, but to deny its reach seems dead wrong
Jim Cramer
An investor observes stock market at a stock exchange hall in Nanjing, Jiangsu Province of China.
ChinaFotoPress | Getty Images

In Cramer's perspective, few investors saw the bottom coming. Back in August, many thought that the Shanghai floor was a phony attempt by the Chinese government to halt the run on the exchange.

At the time, Cramer was told by many short sellers that the bottom could not possibly hold and that no government was rich or powerful enough to stop the decline.

"But, phony or not, the Chinese stock market never went lower than that last week of August, and it is the only explanation for the miraculous pivot in our own industrial stocks," Cramer said.

Before the bottom was reached, China was front and center as a massive systematic risk for the entire world. The index fell so hard and so fast that Cramer thought the Fed chose not to raise interest rates because it feared escalating bear market.

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Things took a turn for the worse when rumblings surfaced about Glencore, a large European mining and trading house, facing trouble. The perception was that it had racked up billions in debt that it might not be able to pay and could cause a collapse in the entire financial sector.

On Tuesday, Glencore shared with investors earnings that were actually pretty good. It managed to raise a ton of money and pay its bills without too much of a problem. Cramer can't declare it all-clear, but he is willing to acknowledge that Glencore might not bring down the world.

So while many may ridicule the bottom of the Shanghai index, the truth for Cramer is that it stopped going down at the end of August and prompted a rally in U.S. industrials that has continued since.

"The systematic risk from either China or Glencore has diminished. It's pretty amazing that this one index could have that kind of power, but to deny its reach seems dead wrong," Cramer said. (Tweet This)

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