Mad Money

Cramer gives 5 reasons for buying the market's dip

Key Points
  • "Mad Money" host Jim Cramer suggested on Tuesday that investors do some careful buying on the stock market's downturn.
  • It's fine to be concerned about the pullback, but a devastating crash seems far out of reach, Cramer said.
  • So the "Mad Money" host gave investors five reasons why they shouldn't worry and should use the pullback to pick up good stocks on weakness.
5 reasons to buy the market dip
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5 reasons to buy the market dip

Every time the market pulls back, CNBC's Jim Cramer sees tons of people get scared out of their wits about a potential crash.

"Don't get me wrong, it's OK to be concerned. You should always keep a close eye on your stocks — they're not cash," the "Mad Money" host said. "But I think worries about a devastating sell-off lurking just around the corner are indeed overblown, because there are a lot more benign forces at work in this market and not many malignant ones that can cause fortunes to be lost in the blink of an eye."

Cramer acknowledged why investors might have been particularly perturbed by Tuesday's dip. There was no immediate cause for the sell-off, there's very little volatility despite geopolitical tensions, tax reform seems like it's a long way away and stocks have run up quite high.

"All that said, I remain cautiously optimistic and think you need to use these dips — yes, indeed, I know — as buying opportunities. Why? Five reasons," Cramer said.

1. Earnings

First, Cramer pointed out that many stocks have run higher because their companies' earnings reports were particularly strong.

"Now sellers are coming in, I think, just to lock in their profits knowing there might not be any more real news for another three months," he explained. "I think it's a silly reason to sell, but it's happening."

2. Backdrop

Second, the "Mad Money" host noted that the overall backdrop hasn't changed. Even though long-term interest rates aren't rising as expected, the market as a whole is calm.

"I just don't see how stocks are going to collapse under their own weight given the current benign business backdrop," Cramer said.

3. GE

Third, Cramer argued that the weakness in General Electric shouldn't offset or reflect badly on the rest of the stock market.

"GE has its own set of self-inflicted, company-specific problems," he said. "I don't think GE's another Tyco or a Cendant, two notorious debacles that had a lot of negative pin action."

4. Congress

Even with all the dysfunction in Washington, Cramer does expect Congress to pass some kind of tax reform, even if it's just a moderate tax cut.

"But again, the market's recent rally has never been about tax reform, never, so it would make no sense that we crash if tax reform fails," the "Mad Money" host said.

5. Takeovers

Finally, Cramer said that when stocks truly start to breakdown, takeover talks tend to come to the rescue and bring them higher, like what happened with Broadcom's recently rejected bid for Qualcomm.

Final Thoughts

Cramer insisted that investors buy the dip carefully, so that they don't get let down if the market sees another downward move.

"Remember to build your position slowly on the way down, so that way you do not panic if the market keeps declining," the "Mad Money" host said. "The bottom line: I'm always telling you to wait for a pullback before you pull the trigger. Well, we may be staring at exactly the pullback you've been waiting for. So don't panic and embrace it."

WATCH: Cramer reviews the pros and cons of Tuesday's decline

Cramer gives 5 reasons for buying the market's dip
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Cramer gives 5 reasons for buying the market's dip

Disclosure: Cramer's charitable trust owns shares of General Electric.

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