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Cramer: Stocks that rally in a Chinese sell-off

All rallies might look the same, but sell-offs are all different in their own way. Jim Cramer applied this logic to the plunging of the averages on Monday, even as the proximate cause of the worldwide sell-off was China.

Often when a rally occurs, traders will figure out what stocks have not moved in sync with the S&P, and buy those stocks.

"Why not? A rally should include almost everything because rallies reflect generally positive events that resonate with all stocks. That is totally not the case with sell-offs, which is why we need to plunge into them on a case-by-case basis," the "Mad Money" host said.

Stocks declined significantly in the market open on Monday after Chinese rules involving circuit breakers halted trading after stocks declined 7 percent. As a result, Europe sank 3 percent and the U.S. market dropped 2 percent.

Cramer speculated that the impact of China could cause the U.S. market to decline as much as 5 to 7 percent, so it may be best for investors to sit on their hands until the market gets to that level.

"Sell-offs can be vicious, and we don't need to be heroes, especially when the Fed is tightening. We must always be willing to take a pass, even as our ultimate goal is to buy stocks of good companies at reasonable prices," Cramer said. (Tweet This)





China in the blast zone

An investor observes stock market at a stock exchange hall on December 14, 2015 in Beijing, China.
ChinaFotoPress | ChinaFotoPress | Getty Images
An investor observes stock market at a stock exchange hall on December 14, 2015 in Beijing, China.
"We want to avoid worldwide economic sensitivity wherever possible." -Jim Cramer

So, with the concern of China in his mind, Cramer shared his sell-off game plan of stocks that are worth buying right now, and those that should be avoided in the current environment.

First up were the stocks that need to be sold, which include industrials closely linked to China. While Caterpillar was the most obvious offender of the group, Cramer considers the entire industrial group a blast zone. It gets bought last.

Read more from Mad Money with Jim Cramer

Cramer: The market is totally irrational!
Cramer: Horrifying stocks to avoid in a sell-off
Cramer: Stocks that get stronger in a decline

The financials are also untouchable, because investors are looking for safety right now and the market turmoil reduces the chance that rates will be raised soon. The banks need higher rates to flourish.

As for the technical stocks, Cramer recommended to stay away from the companies that have anything to do with cellphones, because marginal buyers of cellphones are the Chinese. That makes Apple, Skyworks, Avago and Qualcomm off limits for now.

"We want to avoid worldwide economic sensitivity wherever possible," Cramer said. (Tweet This)

There are three groups that stood out to Cramer that could benefit in the current environment: retail, health care and consumer packaged goods.

Cramer targeted Celgene, Kroger, Lululemon, Bristol-Myers, Pfizer, Procter & Gamble and Darden as the shopping list of companies that are all doing well and can continue to perform well going forward. These were the same stocks that did well in the last China scare.

So, when should investors pull the trigger? The last Chinese sell-off in August weighed on the market for four days. Cramer expects that it will be only three days this time around. That means investors should start their buying on Tuesday, but not if the market opens up.

"Chances of it working? Decent. Because it has worked many times before. But of course, because of human frailty, you don't buy all at once. What if you want to contribute your 401(k) money to the S&P 500? Then it's all noise. Wait until day four if you need to commit," Cramer said.

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