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Cramer's 'Mad Money' Recap: Insider Trading Indictment Shows How Market Works (Final)

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NEW YORK ( TheStreet) -- "Want to know what really makes stocks move?" Jim Cramer asked the viewers of his "Mad Money" TV show Monday.

He said the the recently released indictment of insider trading at Galleon Investments provides an "inside" look into how hedge funds make their decisions and how stocks react to those decisions.

Cramer said there are many lessons to be learned from report, which outlines in detail, exactly what information was received by the investment group, and how they reacted to it. The first lesson: Earnings don't matter, guidance does.

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Cramer said in the report, Galleon allegedly received information that Intel (INTC) was going to report a blow-out quarter, but would also lower guidance. Galleon then sold on that information, and the stock sold off sharply.

Another nugget from the report: cost cutting is a good thing. Cramer said in another incident, Intel was reporting a bad quarter, but was also announcing a restructuring effort to lower costs. Galleon bought in on this information, and as expected, the stock rallied on the news.

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Cramer said other lessons include that hedge funds put emphasis on a company's backlog, and also in how quarterly results compare to not only the year ago quarter, but also to the previous, or "linked," quarter. "The results quarter to quarter really matter to these guys," said Cramer.

Cramer called the government's indictment a "page turner" and said it provides invaluable insight into how the game is really played and why stocks sometimes move in the opposite direction from what you would expect.
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