- CNBC's Jim Cramer cautions against investing in extreme moves in the market before knowing what's really going on.
- Taking a closer look at the action is always better than blindly joining a crowd of buyers or sellers, the "Mad Money" host says.
CNBC's is tired of watching the stock market swing from bullish to bearish on a dime.
"If I had to sum up this market in a word, I’d call it extremist. We rush from one extreme to the other, sometimes in the same day," the "Mad Money" host said as Alphabet's successful earnings report drove stocks higher on Tuesday.
Exhibit A? As the Nasdaq rallied on nothing other than Alphabet's strength, the big industrial stocks fell after President Donald Trump praised his administration's tariffs, which tend to hurt industrial conglomerates, Cramer said.
But Cramer argued that the industrials' decline also happened "in part because many traders made up their minds that things weren’t so hot before they even knew what the industrials were going to say."
That's what frustrated him the most. One company's strength shouldn't lift the stocks of unrelated companies, like what happened with Alphabet, and one point of weakness shouldn't drag down stocks of companies that could weather the storm, he said.
"You can blame the macro, you can blame the headlines, but don’t blame the companies," he told investors. "I know Wall Street has given up on China as a source of growth because of trade friction, but last night the PRC injected some serious stimulus into its economy, something that will indeed help the likes of [industrials] 3M and United Technologies."
Better yet, the commodity markets — widely seen as a proxy for global growth — are "red-hot," a signal that means investors should start buying shares of the industrials, Cramer said.
The "Mad Money" host knows it's not easy to navigate the market's swings. How do you know when a move is justified or when it's a product of impulsive trading? For Cramer, the answer's fairly simple.
"Individual stocks still do matter," he said. "It's absolutely true that Alphabet had an amazing quarter, but that doesn’t mean you should buy all things tech, even though that’s exactly what happened at the opening."
And when sellers decide that one earnings report is enough to drag down an entire sector, like they did with Scotch tape maker 3M's quarter, Cramer suggests doing your homework before joining the crowd.
"The moral of this story is that the extremes have to be avoided. Don’t buy up, don't chase when there’s nothing but rampant pin action, like we saw in the case [of] Alphabet. Don’t sell down when there’s nothing wrong," Cramer said. "In fact, here’s a radical idea for everyone who dumped the industrials this morning: maybe try to figure out what’s going on before you take action."
Disclosure: Cramer's charitable trust owns shares of Alphabet and 3M.