Cramer's 'Mad Money' Recap for Aug. 7

Two Kinds of Selloffs

Cramer said that a selloff is "a real sustained period of negative action." A correction can be caused by by inflation or a recession, and the fear of either can spur a decline.

Cramer urged viewers: "When the market takes a 10% hit in under a month, don't get clever." No one can outsmart a down market. "Follow that darn herd," he said, at least for the duration of the negativity. "You're better off being attuned to the mood of the market than being right."

"When the Street thinks inflation is a problem, certain stocks go up. Most stocks go down. When the Street thinks recession is a problem, certain stocks go up. Most stocks go down," Cramer said. It doesn't matter whether the Street's view is correct. Investors shouldn't fight the sentiment.

During inflation-fueled selloffs, investors should buy gold or mineral stocks, which are anti-inflation plays. These stocks should preserve their value or go higher, Cramer said.

During slowdowns, "raid the supermarket aisles and the medicine chests." Soft goods and diagnostics are good bets for a recession, Cramer said.

"It's important that you not confuse these two things," Cramer emphasized. Buying the wrong stock during a selloff can be very painful.

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