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TheStreet Open House

Jim Cramer's 'Mad Money' Recap: How to Invest in a Slowing World Economy


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NEW YORK ( TheStreet) -- Have the economies of the world hit their peak? Jim Cramer wondered on  Mad Money Tuesday. The world in indeed slowing, Cramer admitted, but that doesn't mean that all stocks must follow suit.

For proof that the world is slowing, investors just need to look at economically sensitive commodities like iron, copper, steel and oil. It's certainly true that oil prices are falling because the U.S. is poised to eclipse Saudi Arabia as the world's largest oil producer, but oil prices have also been falling from weakening demand.

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Ford (F) also confirmed things are slowing when it reported its earnings. Not only are sales weak in Europe and South America, but margins here in the U.S. are also slipping, signaling a peak may indeed be at hand.

Housing doesn't look any better, Cramer admitted. Home prices appear to be peaking as well. With the U.S. dollar at its highest level in four years, Cramer said the aerospace cycle may also be peaking.

Then there are bond prices. Surely they're close to peaking now that the Federal Reserve has stopped its bond buying.

So should investors sell everything and go home? Cramer said of course not. The industrials and the cyclical stocks must come down, but for those companies that benefit from lower commodity prices -- think restaurants, retail and apparel -- those stocks can still head higher.

Off the Charts

In the "Off The Charts" segment, Cramer went head to head with colleague Bob Lang to dispel the myth of the "death cross," the most bearish of technical patterns, which occurs when a stock's 50-day moving average falls below its 200-day moving average, signaling Armageddon -- or so the conventional wisdom would have you believe.

Using a daily chart of the iShares Russell 2000 Index ETF (IWM) Lang noted the index is about to make the dreaded death cross, a point that supposedly signals that big fund managers are about to begin selling and shorting, sending things much, much lower.

However, Lang noted the historical data just don't support this thesis. Since December 1988 the Russell has seen 19 death crosses, and while on average it has seen a 1% decline five days after the event. A full year after the event investors would've seen gains, not losses, approaching 12%.

Cramer noted that investors who waited for the corresponding "golden cross" when the 50-day crosses back above the 200-day moving average -- the supposed "all clear" signal to start buying again -- would have seen a 5.5% loss.

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The death cross is nothing to fear after all, Cramer concluded.

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