×

Cramer: This Market Is Like K2 Mountain?

No one likes a 186-point Dow decline, Cramer said Monday, but today’s losses were necessary. A shallow correction now is much better than a big crash later.

How could the Mad Money host say this? Because the Dow’s chart had taken on a K2-like, parabolic incline since the early March lows. And when a market goes parabolic, it means there could be a crash on the other side.

“Today’s pain could be just the thing to break the parabola,” Cramer said, “which would then prevent much larger losses in the future.”

The key then is to figure out how far the pullback will take us. For that, Cramer compared companies’ performance now versus a year ago. He also pointed to the “huge number of advances versus declines” in July, which he said “signaled that any sell-off will be contained.”

But if investors look at how businesses are holding up, they’ll see notable strength in certain areas. Retail’s back-to-school boom time should clock in at just 5% to 7% less than 2008, but that’s after the worst economic decline since the Great Depression. Plus, former President George W. Bush’s stimulus checks helped to boost last year’s sales figures. Stores won’t have that help this time around, but they’re still executing at what Cramer thinks were better-than-expected levels.

Elsewhere in the economy, auto sales are up. And while there’s no doubt that industrial orders are down from last year, there aren’t any companies getting worse. Also, Toll Brothers CEO Bob Toll’s positive statements have recently tempered the endless talk of foreclosures and other housing woes. He said some of the hardest-hit areas are rebounding, and his company is doing better overall in 2009.

Oil and gas are worth watching as well. Schlumberger said that as long as crude stays at $70 a barrel, the industry is in good shape. So the commodity’s slip to just under $67 is on Cramer’s radar. Natural gas is down big, he said, but he feels that Washington is finally recognizing the cleaner fossil fuel’s potential.

All of these good points give Cramer reason to believe that we’ll trend higher after this shallow correction. And that pullback takes the possibility of a crash off the table.

“Have no fear of the parabola,” Cramer said. “The way I see it, today’s decline broke it, and things are primed – after a little more sell-off – to get better.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com