Cramer: Dispelling the market's smoke and mirrors

Sometimes it can feel like the market is all just smoke and mirrors.

Stocks ended sharply lower on Thursday with lingering concern of the strength of the global economy and the effect of corporate earnings, with the Dow Jones industrial average falling 335 points, or 1.97 percent, and the losing 40 points, or 2.07 percent.

So what is real, Wednesday's humongous rally or Thursday's hideous selloff?

Jim Cramer thinks that Thursday's selloff is the real deal, because Wednesday's rally was triggered by some positive Federal Reserve minutes, while the spiral on Thursday is based on real weakness in the global economy. Still, the averages are higher than when the year began.

"Now before I get started on the wacky nature of this market, let me just say, point blank, that we are in treacherous territory," Cramer said. American companies are doing well, but one strand of weakness can spook investors, and they won't see all of the good that's out there.

For example, Alcoa delivered on every item when it reported Wednesday. It showed strong growth in trucks, non-residential construction, autos and aerospace. It is strong companies like this that make Cramer believe that the market is not all that smart. In fact, it's downright dull-witted.

"What makes it so stupid in my eyes? Simple, this market is like the ignoramus who only reacts to the last thing he heard," Cramer said.

Trader on the floor of the New York Stock Exchange.

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The "Mad Money" host is seeing a pattern that whoever speaks last, wins. When Nike said that Europe was very strong, companies selling into Europe saw their stocks rally. When Ford said that Europe was weak, companies selling into Europe were slaughtered. And when Alcoa says that Europe is going downhill, it tanks everything.

This game is pure nonsense in Cramer's eyes, and he said, "It's a form of treachery and that's also a form of torture."

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Read more from Mad Money with Jim Cramer
Cramer: Troubled charts mean stormy seas ahead?
Alcoa lifts Cramer from 'orb of gloom'
Cramer: Was the big rally a one-hit wonder?
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So how will this treachery end? Cramer thinks it will only end in two ways. First, we could get so low that Europe no longer matters— neither will ISIS, Ebola or even China, for that matter. The second would be that countries will make peace in Europe, and we manage to contain ISIS or Ebola. He's seen crazier things happen.

"We will know that it will be the right levels to commit capital because the commodity markets will bounce, companies won't go down when they say Europe's weak, and their earnings won't be cut," he said.

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