×

Is This Market Too Optimistic?

U.S. stocks gained on Monday, but the day's rally was dampened by news that Germany and other top-rated European nations could see their credit ratings cut. So what's right, Cramer asked, the morning's rally or the afternoon's pullback?

Stocks have tied their fortunes to a hoped-for resolution of the European debt crisis. Optimistic investors bought shares in the morning after French President Nicolas Sarkozy said Germany and France had come to an agreement on tighter fiscal controls for the euro zone, to be voted on Friday. But reports of potential downgrades for every euro-zone nation hit markets hard by late afternoon, erasing part of the day's gains.

Two weeks ago, the markets appeared on the eve of destruction, but Cramer noted the market is now in a better mood. Attitudes changed after the world’s central banks agreed upon action that would avoid sizable bankruptcies and ease the strain of the economic crisis. Meanwhile, China cut rates and when the Chinese government wants its economy to grow, Cramer said it takes the world with it. Despite this, Cramer noted there are still a lot of challenges out there, including and especially regarding Europe’s debt woes. If Europe is back on a growth path, that’s welcome news, but investors should curb their enthusiasm because there will likely be bumps along the way.

“When we came in last Monday looking like it was the end of the world, we didn't expect any good news and we got a ton of it,” Cramer explained. “That's what caused this magnificent rally.

“But when we came in today, we were thinking that this is the beginning of a new, more positive era, with nothing but good news about to come our way. Yet the FXE, the ETF that measures the strength of the euro, the key barometer I look at to measure how good things really are, actually slipped today.”

Bottom line: Cramer doesn’t like markets that are overly optimistic, so he recommends investors remain vigilant and wait for a price break before buying anything more.

Reuters contributed to this report

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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