Cramer's 'Mad Money' Recap: A Healthy Correction (Final)

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NEW YORK (TheStreet) -- "Today was a day of pain," Jim Cramer lamented to the viewers of his "Mad Money" TV show Monday.

He said unless investors were scaling out of their positions or shorting the markets, it was hard to avoid losses on day like today. But he said days like today may be exactly what the markets need.

Cramer explained that every investor's worst fear is that the markets will go parabolic, rising sharply like they did from March through July of this year, only to crash hard on the other side. But big selloffs like today help protect the markets, he said, and shield them from big crashes.

Cramer said he expects, and hopes for, a market correction between 3% and 5%. A shallow correction, he said, will keep the bull market on track and prevent it from falling off a cliff.

So what are the right levels for the markets to be at? Cramer said in order to answer that question, we must first ask, "Are companies better off now than they were in March?" He said the answer to that is mostly yes.

While many analysts predicted a non-existent back-to-school retail season, retailers instead delivered results that were only down 5% to 7%, said Cramer. That's amazing, said Cramer, considering that last year's back-to-school sales were artificially propped up by stimulus checks.

Cramer said no matter where you look, there are signs of a bottom forming. This is the case in retail, and housing and in the industrial stocks, he said. According to Cramer, the only sore note in the markets are the oil and natural gas stocks, but even that group may be lifted by changing tones in Washington regarding the role of natural gas in the nation's energy plan.

Cramer concluded that if things really aren't as bad as they were in March, why shouldn't the market's rally again after a healthy, modest correction?