Jim Cramer: How to spot a bottom in the stock market

In the face of a brutal market sell-off that has knocked U.S. stock averages of their highs, CNBC’s Jim Cramer on Thursday said the market must run through the grief cycle before investors may spot the bottom.

“If you want to be able to bottom fish at lower levels, make sure you’ve got a little cash to be able to do it with ... because the real rally can’t begin until we work through these five stages of grief,” the “Mad Money” host said. “Once that happens, though, you don’t want to miss it.”

His comments come after stocks finished lower for the third-straight session, dropping the tech-heavy Nasdaq Composite into negative territory on the year. The Nasdaq closed at 12,723.47, a 2.11% decline from Wednesday and a 1.28% decline from the beginning of 2020.

The Dow Jones Industrial Average finished at 30,924.14, down 346 points, or 1.1%. The S&P 500 pulled back 1.3% to 3,768.47.

The Nasdaq is almost 10% off its peak close last month, while the Dow and S&P 500 are both more than 3% below their February highs. Some investors are eager to buy the dip and continue to ride the bull run, but Cramer suggested that there’s more room for equities to fall due to the bond market, adding that many are in denial about the state of the market.

The investment community has to go through the five stages of grief, which are denial, anger, bargaining, depression and then acceptance, the host said.

“Right now, even after a 6% decline, we’ve still got a ton of denial,” Cramer said. “People don’t want to believe the sell-off is real. The market’s been so good for so long, and many newer investors have never seen this kind of pummeling, so the downdraft does seem pretty surreal.”

Fixed-income investors, worried about inflation that could come with the U.S. economic recovery, are selling bonds and the activity is bleeding into the stock market. Institutional investors taking their cue from the bond market are swapping tech and growth stocks in their holdings for cyclical and value names, and retail investors can’t afford to ignore it, Cramer said.

Comments from Federal Reserve Chairman Jerome Powell put further pressure on bonds when he told The Wall Street Journal Thursday that it was monitoring inflation, but stopped short of giving any guidance whether a policy change is on or off the table after about a year of near-zero interest rates.

“Would it have been better if he had said we have to raise rates? Probably, because the bond market reacted viciously with long-term interest rates spiking, and that’s what took the whole stock market down,” Cramer said of Powell. “In short, stocks are getting hammered because the bond vigilantes, as we call them, are angry.”

Cramer suggested a one-day decline of as much as 7% in stocks could fast-track the market to the acceptance stage of grief, “where there’s a collective sense that the market’s toast.”

In the meantime, he said investors should have cash on the sideline and wait for the right moment to find the market bottom in the multi-week decline.

“We’re going to get bounces, bounces that make people feel like their bargaining has succeeded, but it hasn’t,” Cramer said. “If you lighten up … you’re going to be ready for the moment of capitulation, the crescendo, the acceptance that marks the trough.”

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[benjaminblackmqn]

Even with the availability of different trading options in the market like CRYPTO, STOCK, FOREX etc. It can still be very possible for one to make loss unless they do have the proper skill to do so.

[asdasdf]

Cramer last week: buy the dip
Cramer this week: it’s too early to buy the dip

[Rolandinos]

This guy is wrong like 90% of the times 🤡

[petecheng]

Cramer last week: Let me make you some money
Cramer this week: Let me save you some money

[CommanderTexas]

I've been burned enough in my life that now I just go from denial straight into acceptance.

[sarahyoung]

I believe that to benefit from the financial market one needs a full trading system with a watchlist, position sizing and signals for maximizing gains and minimizing losses, technical analysis alone is not a trading system.

[johnronny]

A YEAR FROM NOW YOU'LL EITHER BE HAPPY THAT YOU STARTED WORKING ON YOUR DREAMS OR WISHING THAT YOU HAD STARTED.
GET STARTED NOW AND DON'T LIVE WITH REGRETS! You can do it! :)

[patriciakazy]

I think that stocks have been this tremendous, tremendous equalizer for people in this country. GUYS who cannot make a lot of money at their jobs have been able to make a lot money in the stock market.

[b.]

GME is the safest stock currently. LOL

[shawnl]

Don’t forget Cramer warned us about the double bottom in March that never happened

[godsent]

the biggest coward on TV, behind the scenes he’s friends with hedge fund managers, shorts & plans to lure the audience into a slaughter fest of retail traders.

[raydavid]

How favourable is the market now. I want to invest in cryptocurrency?

[nicholaskorenkiewicz]

I wouldn't listen to a word this guy has to say, he's still mad about GME and AMC

[marykaren]

Starting early is the best way getting ahead to build wealth, investing remains a priority. The stock market has plenty of opportunities to a decent payouts, with the right skills and proper understanding of how the market works

[fhowland]

When my neighbor who knows nothing about stocks told me he bought ARKK, I knew it had hit a top. Sure enough...

[uzzuzz]

Last week he was saying buy Tesla @ 720
this week he’s a psychologist.

[harambethegorilla]

In general, to summarize there are two important points:
1. Cash is king. Have cash on hand to capitalize on cheaper prices.
2. Hold or at the most sell a little bit to have cash on hand, but the market will come back.

[Mrslykid]

Crammer is the worst indictor for investors! LMAO! You have a better chance using the 200 daily moving average and a seeing profit versus this dude!

[ryanvilla]

This guy just said earlier this week that it was a buying opportunity and that the dip was only a one or two day temporary drop. Since then it has gone down almost 10 percent. He somehow always seems to be wrong.

[dkwroot]

Don't need to over complicate this. Just buy the dip and play the long game. Stonks will bounce back, just don't panic sell.