The Dow soared 379 points on Tuesday, offering relief to investors for the first time in what seems like a long time. On Tuesday’s Mad Money, Cramer made his case for why he thinks the rally will continue.
All the right factors came together to produce today’s action. Megabears Nouriel Roubini and Meredith Whitney were out in full force, forecasting the worst possible scenario for the markets. Roubini said the Dow would drop straight to 5,000, while Whitney announced in Wall Street Journal article that credit-card debt was the next great trial we’d endure. Newspapers, too, have been calling a 5,000 level for the Dow, and Senator Richard Shelby, ranking Republican on the Banking Committee, has been calling for the liquidation of the banks. Moody’s even put out a death-watch list. This kind of overwhelming bearish sentiment, Cramer said, is always the first part of any big move higher.
Then news that the uptick rule would be reinstated hit the wires. Lack of regulation on this specific point has allowed short sellers to hammer down stocks with impunity. But the uptick’s return puts a stop to that. It also stifles the UltraShort Financial ProShares fund , which bears have been using to sidestep SEC margin rules and do even more damage to stocks. This development traps the bears, Cramer said, something that’s essential for a nice rally.
Three big positives will keep this rally going, namely in tech, oil and financials. Texas Instruments’ good news about lower inventories and increased demand for 3G cell phone components should ripple out to others in the business. Think Research in Motion , Analog Devices and Skyworks Solutions.
Oil in the $40s is attracting money back to the sector, Cramer said. Some overly negative sentiment here – such as The New York Times story “Wondering if Crude Could Fall Even More” – indicates that crude should continue higher. Also, Chevron’s doing well. The strength in oil, like TI’s good news, should work its way into energy infrastructure companies, who’d lost projects because the price per barrel was so low.
The financials play a part here as well. Federal Reserve Chairman Ben Bernanke seems ready to adjust the mark-to-market accounting that’s so devastated the institutions holding asset-backed mortgage paper. If this happens, Cramer said, the banks look cheap and it finally frees them up to move higher.
Other events of note: Citigroup’s quarterly numbers should mean that the Goldman Sachs and Morgan Stanley reports would be even better. Cramer thinks we could see some upside surprises.
These all add up the material positives Cramer said he’d need before changing his mind about this market. They indicate a genuine rally that should go much higher.
Cramer's charitable trust owns Chevron, Goldman Sachs and Morgan Stanley.
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com