Trading the Next 400 Dow Points

Why didn’t the market tank on Monday, continuing the Dow’s near 400-point drop from the week before? Because investors had reached “what’s the point?” levels, Cramer said.

As in, stocks—especially the techs and banks—are already down enough, so what’s the point in pushing them even lower? As Cramer said, “There was nothing worth destroying … and that’s why the market didn’t get hammered today.”

That doesn’t mean we’ve hit a bottom, though, he said. But it does mean we could see a small rally, as these sold-off stocks find buyers because they have come down so much in price. A similar move happened during trading on Monday, when the worst of last week seemed to be over and stocks rallied a bit before dropping by the end of the day.

That could happen again on a larger, multiday scale because, with things as they are now, the market can’t fall much farther. Not with interest rates this low, some typically small dividend yields trending higher and the potential for gridlock in Washington quieting the panic necessary for a crash.

But be forewarned, though: When the Dow gets back to 10,700, up from its present level of about 10,300, expect the selling to continue. Therefore you’ll need to avoid the companies that short sellers seek out: those that don’t pay dividends (because short sellers are responsible for paying dividends while holding these stocks), those that rise on a Federal Reserve interest-rate easing, and those in line for a takeover.

In short, the techs and banks.

The banks can’t pay dividends for fear of incurring Washington’s wrath, interest rates are already at zero percent, and takeovers are virtually nonexistent because loan books are just too risky these days. Plus, the recent financial-reform bill makes the whole business a bit harder than before.

In tech, the Street has decided that Apple and its products, along with and cloud computing, have hurt the profits of companies like Oracle , Intel and Microsoft . They’ve gone from secular growers to cyclical growers to secular decliners. And for that reason, short sellers will do serious damage to the group as soon as they get the chance.

So the market can still rally, Cramer said. But only because stocks have been sold off to such a degree that can’t possibly go any lower. Trade the upswing if you want, but be ready to take profits when we hit the 10,700 level.

When this story published, Cramer’s charitable trust owned Apple and Intel.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?