Reposition Stocks Into Market Strength

Is it worth repositioning into strength? Is the selling over? Here's the rub: The bears are still very much in control. This is the oversold rally. We have been waiting for it. I predicted it -- OK, the oscillator predicted it. I like to sell into strength. To not be underweight the financials is to court more pain.

There are two kinds of stocks to buy here: those that blew away the numbers on revenue and those that blew away the numbers on cost controls. Sun (SUNW - commentary - Cramer's Take) and GM (GM - commentary - Cramer's Take) come to mind.

Both are much, much better than any financial.

Now, I know the financials represent great value. I look at Washington Mutual (WM - commentary - Cramer's Take) and I salivate. The lies being told about Fannie Mae (FNM - commentary - Cramer's Take) are pretty amazing. The idea that Citigroup (C - commentary - Cramer's Take) is "in trouble" is amusing at best.

But the mortgage issue isn't going away. The hedge fund blowups aren't done. The credit risk is still there. We are up today, we might be up the rest of the week, but you must understand that the moment we go down it will be pinned on mortgages and leveraged buyouts, and that's not good. That's not good for this group.

I am giving you the worst-case scenario today -- and did last night -- because I want you to understand what you are up against.

This rally isn't going to help the underlying businesses of Hovnanian (HOV - commentary - Cramer's Take) or American Home (AHM - commentary - Cramer's Take). The fact that there are an incredible number of home equity loans that are going to cause mortgages to go bad isn't in the numbers.

The fact that the bankers can't sell the loans, while not devastating to the franchises, will hurt earnings and the estimates haven't been cut yet. (Read Stockpickr Guest Columnist Mark Horrell about this stuff, it's real good).

Which is why I am saying that the issue is alternatives: Given a choice between owning Merrill (MER - commentary - Cramer's Take) vs. GM, it's not hard. Given Lehman (LEH - commentary - Cramer's Take) vs. Hologic (HOLX - commentary - Cramer's Take), it's easy. And given Bear (BSC - commentary - Cramer's Take) vs. Conoco (COP - commentary - Cramer's Take) it's just a layup.

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. Click here to order Cramer's latest book, "Mad Money: Watch TV, Get Rich," click here to order his book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.

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