Cramer's Lesson for Navigating Earnings Season

It's time to make sense of how the market is reacting to earnings season, Cramer said Wednesday.

Always the first to report earnings, it's said aluminum producer Alcoa will set the tone for what comes after. For that reason, Cramer's a little worried about this earnings season. Alcoa reported a decent quarter on Monday, but the media described it as "disappointing."

"This is why investing seems so hard, why the game can seem rigged," Cramer complained. "Even when the results are good, a stock can still get hammered just because the conventional wisdom coalesces and says they're bad."

What happened to Alcoa could be the theme of this earnings season, Cramer said. JPMorgan Chase , for example, beat expectations with its profit when it reported on Wednesday. Enthusiasm waned, though, when a top executive said on a conference call that it wouldn't hike its dividend any time soon.

So what happened with Alcoa?

Cramer's charitable trust has long owned shares of the Pittsburgh-based company. Over the years, he's watched shares go up and down. All the while, Cramer thought the company needed a CEO with a vision, who could also spur growth. Cramer thinks Alcoa now has that CEO in Klaus Kleinfeld. Under his leadership, the company is lowering costs and taking share. On Monday, it finally reported a good quarter and raised its growth forecast, as well. It's also on schedule to open low-cost smelters.

"And now it's supposed to be disappointing? Now what we wanted is suddenly not good enough?" Cramer said. "Now people doubt the management team?"

The "Mad Money" host was perplexed. After having listened to the conference call and having twice read the transcript, he couldn't figure out why it was "disappointing." The negative cash flow wasn't great, but that is in the past and won't be the case going forward, he said. It had some small currency issues and was slightly hurt by Brent crude . Still, Cramer said these few negatives don't even offset its growth in China.

What likely happened then, Cramer said, is that people didn't do their homework. The media didn't read the transcript line-by-line. Instead, it cherry-picked a few elements and then affixed "disappointing" to the headline.

In addition to the negative press, Alcoa's stock wasn't helped by timing. Alcoa happened to report on the day Goldman Sachs picked the commodity bubble, although not an aluminum bubble, Cramer said. The stock was also up 16 percent going into the quarter, so it's possible it got slammed back down as we were in the middle of a correction. Finally, Cramer thinks people wanted Alcoa to produce amazing results with earnings up to 5 cents better-than-expected, even though that was unlikely to happen.

"It's a glaring reminder that you must, must, must do your own homework because while the stock might drop for three or four days, three or four months from now all the people who sold it down here will look like dopes because they simply took as gospel that the first reporter this earnings season was terrible when the truth was it was anything but."

When this story was published, Cramer's charitable trust owned Alcoa.

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