Cramer's 'Mad Money' Recap: Shape of Recovery Weighs on Market (Final)

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NEW YORK (TheStreet) -- The debate over what type of recovery was at the heart of today's selling in the markets, Jim Cramer told the viewers of his "Mad Money" TV show on Wednesday.

According to Cramer, the key to the market's direction is spelled "LUVWM," an acronym which spells nothing, but illustrates the different types of recoveries the markets might have.

An "L" shaped recovery isn't a recovery at all, he said, but just a "down and out" pattern in the markets, he said. A "U" shaped recovery is gradual, gentle recovery, while a "V" is a sharp snap back to prior levels. More complicated are the "W" and "M" shaped recoveries, which predict multiple rises and falls in markets.

Which kind of recovery is the market going to have? Cramer said he has no idea, but said that all these letters spell only one thing, and that's diversification. He said investors need a portfolio that will prosper no matter what letter recovery the market has in store.

For a "L" recovery, he would look at consumer stocks like Pepsico (PEP Quote), a stock which he owns for his charitable trust, Action Alerts PLUS.

For a "U" shaped recovery, Cramer likes natural gas stocks such as Transocean (RIG Quote), while for a "V" he likes the industrials companies like Emerson Electric (EMR Quote), another Action Alerts Plus name.

For a "W" recovery, Cramer said he'd also stick with industrials like Emerson, but for an "M" recovery, he'd stay in gold, with stocks like Agnico-Eagle Mines (AEM Quote).

Only through a diversified portfolio like this one, he said,will investors stay ahead of the markets.