Cramer Analyzes the Strength of Earnings Season

Despite a strong start to earnings season, U.S. stocks fell for a second day on Thursday.

The Dow Jones industrial average slumped 68.65 points, or 0.53 percent, to close at 12,964.10, below the psychologically-important 13,000 milestone. The blue-chip index was down more than 130 points at its worst level.

Meanwhile, the S&P 500 erased 8.22 points, or 0.59 percent, to finish at 1,376.92. The Nasdaq dropped 23.89 points, or 0.79 percent, to end at 3,007.56.

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The day’s losses can’t be blamed on bad earnings, though, said Jim Cramer on CNBC’s “Mad Money.” Stocks simply ran up too much ahead of earnings season, he said. Many companies are reporting strong earnings, only to see their stock fall.

Take Yum Brands, for example. The restaurant chain operator delivered earnings that met expectations across the board, Cramer said. Some critics didn’t think it performed well in China while others were unhappy with its Taco Bell brand. Other people worried about raw costs. To Cramer, these fears are not only overblown, but unwarranted because he thinks Yum’s China numbers were actually on target, Taco Bell is turning things around and raw costs are actually in decline.

Yum’s stock fell sharply, though, and the selling only prompted more selling. After all, Cramer said nobody would believe a stock could actually go down on good earnings. But either way, Cramer said it really wouldn’t have mattered what Yum said because the stock greatly rallied ahead of the quarter.

Yum is just one of many stocks that saw this kind of action on Thursday, Cramer said. So when it comes to analyzing this earnings season and the market in general, he said investors need to consider share price.

“After a fabulous first quarter and a rip-roaring fourth quarter, for many stocks, the price just isn't right. So those prices are being adjusted downward, even when the earnings are fabulous,” Cramer said. “Be patient, let them come down, and do some buying when the price is right.”

—Read on for Cramer's Earnings-Loaded "Game Plan"

— and wires contributed to this report

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