This isn't a rally, it's a rotation, Jim Cramer told his Mad Money viewers Monday, and that rotation can't last much longer unless analysts being raising their earnings estimates.
Today's market action was really a tale of two markets. On one hand, the domestic stocks that benefit from tax cuts got a big boost, while those with more international exposure were being sold to raise funds for the former. Investors may be getting overly enthusiastic however, Cramer warned viewers, because without actual earnings estimates going higher, the rally might be short lived.
For domestic retailers, like Home Depot (HD) - Get Report , which has an effective tax rate of 36%, paying only 20% in taxes would mean a mountain of cash. What would the company do with that cash? Cramer said it's likely they'd buy back stock to raise their earnings per share. But until that happens, there's only so high the stock can go.
On the other hand, there are technology stocks, like Western Digital (WDC) - Get Report , which generates 68% of its sales overseas. This company wouldn't benefit much at all from lower taxes. These companies do have high growth however, and eventually, that will matter again once the tax cut euphoria dies down.
In the meantime, Cramer told viewers to look for anomalies, like the rails, which have rallied too far, too fast and are likely to sell off soon. They should also keep an eye on the banks, which are also just off their highs, but may not have blowout earnings like many expect as they need higher interest rates to really thrive.
The market is overbought, Cramer concluded, and that means investors need to use caution.
Sometimes companies merge to gain scale, sometimes to cut costs. But sometimes, they merge to change the narrative and update the entire image of their company.
Nowhere is this notion more apparent than in the speculationthat Walt Disney (DIS) - Get Report is looking to acquire assets from Twenty-First Century Fox (FOXA) - Get Report and in CVS Health's (CVS) - Get Report purchase of Aetna (AET) .
Disney can't seem to catch a break. Despite having strong movie and theme park sales, all anyone cares about are the subscription losses at ESPN and the pace of cord cutting. Buy buying Fox however, Disney can change that perception, doubling down on TV and gaining more international exposure.
CVS has been seen by many as left in the dust by an increasingly online world. But as of today, CVS transformed itself from a low multiple retailer to a high multiple healthcare company.
Cramer said many weakness in CVS would be an opportunity to buy into this new image.
Amazon Hasn't Killed Grocers Yet
When Amazon (AMZN) - Get Report declares war on an industry, the death sentence might not be immediate, Cramer cautioned viewers. Case in point, the grocery stores, which suffered heavy losses after Amazon's acquisition of Whole Foods back in June, but have since been on fire.
The Whole Foods acquisition for $13.7 billion caught many investors by surprise and the carnage in the grocery stocks was swift and brutal, with shares of SuperValu (SVU) plunging 14.4% in a single day while Kroger (KR) - Get Report fell 9.2%.
But as is typically the case, Wall Street got ahead of itself, and the demise of the grocer industry was not imminent.
After strong earnings from Kroger and a 10.8% rise in sale store sales at Costco (COST) - Get Report , it now seems the the grocery business will be just fine, at least for the time being. Shares of Kroger are up 36% from their October lows and the group overall is up 20% to 30%.
With low valuations, Cramer said the grocery stores are still attractive, as we the dollar stores, which continue to lead the group higher.
For his "Executive Decision" segment, Cramer once again sat down with Howard Lerman, co-founder and CEO of Yext (YEXT) - Get Report , the cloud company helping enterprises manage their digital knowledge.
Lerman said that Yext just posted a terrific quarter with 39% growth overall and expanding gross margins. He said Yext is building a business for the long-term and has offices in the U.S., Japan and China.
Lerman explained that services like Siri, Google Home and Alexa all have a knowledge layer from which they get their answers. This deep Digital knowledge is the only part of AI that companies can control, so it's vital that the information be complete and accurate.
One of Yext's customers, Volvo, was able to upload their important automotive data to Yext and in turn, correct over 50,000 individual errors across hundreds of different services. Restaurants also use Yext to make sure their locations, coupons and most importantly, their menus are correct and fully indexed, so when customers are searching for "tacos," they'll be sure to find your taco restaurant when they're nearby.
Cramer was bearish on Advanced Energy Industries (AEIS) - Get Report , Himax Technologies (HIMX) - Get Report , LAM Research (LRCX) - Get Report , Sogou (SOGO) - Get Report and CenturyLink (CTL) - Get Report .
In his "Homework" segment, Cramer followed up on a few stocks that stumped him during earlier shows. He said that PBF Energy (PBF) - Get Report seems like a great oil refiner, but with shares already up 16% since August, he feels the move has already been made.
Finally, there was Array BioPharma (ARRY) - Get Report , a speculative biotech with no products on the market, but five drugs in phase III trials. Cramer said despite being a long way from profitable, he's a fan of Array's prospects, but only as a speculative investment.
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At the time of publication, Cramer's Action Alerts PLUS had no position in stocks mentioned.