Jim Cramer Calls 3 Strikes Against the Stock Market

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The Action Alerts PLUS charitable trust was a seller during Tuesday’s 550-point (2.4%) rally, and Jim Cramer this week outlined three reasons in his monthly club call with AAP members.

Cramer points out that the difference between the 2007-2009 crash and the market’s current situation is the sheer speed of the drop in the coronavirus-pandemic-plagued economy.

Cramer also notes that during the 1987 crash, which occurred at a speed similar to that of the 2020 crash, the right thing to do was buy and hold stocks for a year to see returns on your investment.

Not this time, however, Cramer says.

“This time you had to exert a huge amount of discipline, literally wait until the sellers wanted out more than the buyers wanted in,” Cramer told Action Alerts club members tuned into his monthly call.

He then went on to give AAP club members three reasons that they should remain sellers despite intermittent moves higher by the major indices.

The first reason: The market is clearly showing that if a company has cyclical risk in the current environment, then investors have no appetite for that stock. Meanwhile, stocks with pure COVID-risk profiles are being bought.

Cramer says he regrets not selling more of AAP holding JPMorgan  (JPM) - Get Report when he had the chance before the bank’s recent earnings release.

The second reason for the sell recommendation is that the AAP club is “as religious about selling the overbought markets as we are buying the oversold ones.”

The club recently sold shares of PepsiCo  (PEP) - Get Report and Johnson & Johnson  (JNJ) - Get Report due to both of those companies being overbought.

“While PepsiCo then went up another two bucks after we sold it, I would do that again any day of the week. Darn thing, like the stock market itself, is too overbought,” Cramer said.

The final reason for the selling is that the club does not believe that the country is making significant progress against COVID-19.

“I am not a believer in a vaccine any time soon. I am a believer that we can be a lot more confident about the economy if we just check off those boxes and we haven’t been able to pull it off. Therefore I want to scale out of things except for companies that have products you use at home,” Cramer said. 

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