Home Depot Highlights the Difficulty Here

Boy, it's tough to figure this market out, at least if you are a headline writer. Why did the market go down 24 points yesterday? The Journal says "Dow Falls As $71 Oil, Bond Yields Spark Worry."

But today, yields are pretty much unchanged and oil's soaring up $1.19 and the market's going great guns: "Dow Rises As $72 Oil, Bond Yields Spark Buying"?

I think this is one of the toughest moments out there, because we just keep trying to figure out where this market should be given that one of the best tells of the whole economy, Home Depot (HD - commentary - Trade Now), preannounced better-than-expected earnings but then said it was cautious over the outlook. That's the real conundrum -- what price should you pay for a "less bad" outlook?

This Home Depot valuation problem really is emblematic of much of the market. Consider that Home Depot, instead of sticking with its guidance for a 7% fall in earnings, says that it might be less severe. Sounds good, right?

But then they said that sales should still fall by 9%.

That's cost-cutting, not improvement in the economy. Top line's bad, bottom lines good, something CEO Frank Blake confirmed by saying Home Depot cannot "cost cut its way to improved operating margins in a negative sales environment"

But then, according to the Financial Times, Blake's right back at it with this gem: "The worst of the correction is behind us." As a result, continues the FT, Home Depot sees "sequential improvement in our comparable sales performance," which is sales, not earnings.

Is that less bad, or actually good? Is it "good" absolutely or is it only "good" relatively ... or is it just an instance where Blake doesn't really know?

Isn't that the total depiction of how hard this moment is? Think about it: Home Depot says things are not as dire as they were but are still really bad but getting better but there are no empirical signs that things are getting better so we can't really predict things are better.

What the heck?

No wonder the headline writers are struggling.

So where does it leave us? I think it leaves us exactly where the market is -- maybe good, maybe bad, certainly up enough if things are less good but up too high if things don't get better, except if the company has taken aggressive action to bring costs down. That's the true depiction of why it is so hard here. Lots of companies did the right thing and scaled back so they aren't losing as much as we thought they would. But how high can that really take us?

The market's not dumb. What did Home Depot do yesterday on its better-than-expected report? NOTHING. Nada. Because the stock is already up 6% this year, which is, on a percentage basis, a total depiction of "less bad." If the company's estimates were raised by sales, it would be higher. It was just by cost cuts, so it can't go higher.

Exactly as it should be.

Random musings: Drugs on fire, just on fire today. So are the utilities. Holy cow, as my friend and colleague Matt Horween says, it's a revenge of the nerds! ... RadioShack (RSH - commentary - Trade Now) below $15, I would pull the trigger on that analog-to-digital trade right here.

At the time of publication, Cramer was long Home Depot.

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

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.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.