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Cramer: Until retail snaps back, expect market-wide pain ahead

Cramer: The market cannot rally until retail snaps back

While retail stocks are not as important as health care, technology or finance, they still punch above their weight. The stocks have now become so visible and so disturbing that Jim Cramer is worried.

"I would be kidding you if I said I wasn't worried. All I can say is, this group needs to snap out of its funk or the stocks will only get worse," the "Mad Money" host said.

The sudden decline in retail seemed almost untenable to Cramer. The idea that the sector could just be resting before its next move higher seemed like wishful thinking to him.

The first sign of trouble came when the momentum retailers stalled out or were caught in strong headwinds. Ulta Salon was one of the fastest growing retailers out there but fell 2 percent on Friday.

Right now all I can hear when I think about retail is King Midas in reverse.
Jim Cramer
A customer browses women's jewelry at the Macy's flagship store in New York.
Jin Lee | Bloomberg | Getty Images

Dollar Tree and Dollar General also collapsed when they missed earnings estimates and cut guidance due to competition.

"In fact, (Dollar General) point blank cut prices on 400 products to stay ahead of a newly energized Wal-Mart. That's disastrous," Cramer said.

Specialty players L Brands, Urban Outfitters, Foot Locker and Dick's were the only stocks not pulled down by the gravitation of retail, but Cramer still worried that they could fall.

Investors once thought that housing-related stocks were the safest in retail. But then HD Supply and Tractor Supply reported weak quarters, and have managed to bring down Home Depot, too.

Discounters and close outs are the only group that Cramer believes in. His charitable trust just purchased TJX because it looks like a solid play going into the holidays and a place for Macy's to dispose of merchandise when it closes 100 stores.

However, the weak quarter reported by Pier 1 could also pull it down. The only winner, according to Cramer, is Ollie's Bargain Outlet Holdings.

The nastiest of the bunch were the department stores, with Macy's wallowing, Kohl's slipping away, and Nordstrom losing momentum from its last quarter.

Ultimately, retail must snap back, or Cramer fears that the entire stock market could only get worse. If positive news surfaces surrounding back to school season, it could reverse.

"Right now all I can hear when I think about retail is King Midas in reverse. That is not the direction you want if you believe that this market can go higher without first having a more pronounced decline, like we saw today," Cramer said.

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