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"Whenever we get one of these tech breakdowns, there's always a tendency to play 'Pin the Tail on the Sell-off,'" the "Mad Money " host said. "Is it a slowdown in demand for digitization? Is it regulation cutting into growth? Is it a change in consumer behavior? It would be so darn easy just tp say, 'A-ha, this is the big reason, there's a sea-change and it explains everything.'"
But the problem is that when people get too rigorous in their search for a glaring problem, they can end up being wrong, Cramer said.
"That's because there's no sea-change in this technology business. Not at all. This sell-off is all about the mechanics of the money management business," he said. "As I told you in Tuesday show, high-flying tech stocks tend to get hit in September as people try to take profits before someone else takes them for you. "
So Cramer put his hedge fund hat back on to explain the real causes of the recent tech weakness.
He noted that at any given time, a typical stock will have three types of shareholders: mutual funds, hedge funds and index funds.
Mutual funds, which pool together and invest money from individual and institutional investors, tend to be "overweight" tech stocks, meaning that they own more tech-related holdings than are in their benchmark, the .
So, when mutual fund managers see that the tech-heavy Nasdaq is up roughly 15 percent for 2018 — a staggeringly strong gain — they tend to take profits regardless of what they're selling, Cramer explained.
"If they're up more than 35 percent a stock, [they'd] be reckless not to sell some. You can't defend against that," he said.
Hedge funds, which tend to be more exclusive and higher risk, tend to use algorithms and exchange-traded funds (ETFs) to make their calls on when to buy and sell securities.
Therefore, if Facebook's stock starts selling off dramatically because its chief operating officer appears before Congress, ETFs that own Facebook will take down related tech titans like Amazon, Alphabet and others, causing still more tech selling.
Then there are the index funds, which tend to focus their investments on more specific baskets of stocks. Buyers flock to them regardless of the action of the broader market, so index funds have the power to stabilize a lot of stocks and sectors, Cramer said.
"They're already stabilizing the packaged goods stocks like Clorox and some of the industrials — think Boeing — which don't have big gains ... [so] they're not falling victim to profit-taking, " he told investors. "That's why those stocks are doing better, even as they aren't really giving many money managers what they want."
The chaos in the tech sector will only unravel with time and lower prices, Cramer said. The group will only be able to recover when weaker shareholders get shaken out and lower prices start attracting buyers again.
Until then, the "Mad Money" host reiterated his call to keep an eye on the cloud kings for particularly attractive prices. And, "if you want to be a spectator and not a gladiator," he recommended the health care and retail spaces as safer areas.
"The bottom line is tech's defenseless. It's getting toasted," he said. "It's basically the wrong bird tonight — it's a Falcon, not America's bird, the Eagle."
Disclosure: Cramer's charitable trust owns shares of Facebook, Amazon and Alphabet.
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