Playing Stock Futures With Pair Trades

Yes, you can be too negative, although that sure hasn't been the case lately! Yes, the opportunities of the snapback are always available, as the money-making trade by James Altucher this morning shows (done in the indispensable Columnist Conversation). And I recognize that Doug Kass could be right that the end of the decline could be near, simply because when you go to Dow 6000, a seeming likelihood, you don't have far to fall! With that in mind, let's talk about a way to play the futures that will hold up under the scrutiny of the bears and the bulls.

What do I mean when I talk about disparities caused by the futures? Let's take Colgate-Palmolive (CL - commentary - Cramer's Take) and Procter & Gamble (PG - commentary - Cramer's Take). Colgate is doing incredibly well and has sustained and grown its earnings during this time period. Procter, on the other hand, has failed to do so and truly put on a miserable quarter.

If you didn't have to own stocks, you would be scaling and bailing on Procter, like we did on Action Alerts PLUS, except a tag end. If you did want exposure to the group, you would move into Colgate, because it is taking share and doing well and yet is going down just as fast as Procter. Or you can pair it and go long General Mills (GIS - commentary - Cramer's Take) and short Procter, which would be great if you got a squeeze or if the deterioration continued.

You can perform the exact same exercise on General Mills and Kellogg (K - commentary - Cramer's Take). General Mills had some cautious things to say this morning at the big food conference, but Kellogg is simply not doing well. If you didn't need to own anything, you would sell Kellogg. If you wanted to pair it, long GIS short K makes sense.

Let's take it one further. Deepwater drilling is not going out of style, because the oil companies do not believe that this $30 price has any realism to it, any more than they did the $147 price. The big oils are thinking $50-$60, which means that there will not be rigs contracts to be dropped. That's why the company is looking for authorization to buy back stock. But the drillers levered to more natural gas and less deepwater, Halliburton (HAL - commentary - Cramer's Take) and Nabors (NBR - commentary - Cramer's Take) (although the former has done its best to lessen leverage to domestic gas), can be sold against it, as they are more expensive and have fewer prospects.

These are the kinds of trades that can make sense in this chaotic environment as we sense that things are not stabilizing and that the opportunities for just long-side trades are passed until lower levels.

At the time of publication, Cramer was long General Mills and Procter & Gamble.

Know What You Own: Another competitor of Colgate-Palmolive and Procter & Gamble is Church & Dwight (CHD - commentary - Cramer's Take).

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Jim Cramer is co-founder and chairman 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. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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