The machine broke down today, Jim Cramer told viewers of his "Mad Money" TV show Tuesday. And it happened very quickly -- too quickly for people to react.

An "overheated market" in China and system error caused the U.S. market to drop 416 points in the blink of an eye, he said. Although there were plenty of buyers, they "simply couldn't get to the floor fast enough to buy."

Meanwhile, the selling, perhaps exacerbated by exchange-traded funds, "cracked the dam," Cramer said.

In the old days, when things were sane, there were order imbalances, a stoppage of trading; but things are different now: "You can force the market down," Cramer said.

"My sources indicate that a big options trade went awry and some concentrated ETF selling ... simply crushed this market as easily as a knife through butter."

The "most important takeaway" here is that market players only have three protections "from the whims of a broken system," he told his viewers.

First, there are companies that pay dividends equal to or better than Treasuries after taxes -- a "great defense," Cramer said.

Then there are stocks that are "so low in valuation" that investors and the companies themselves know they are bargains, "meaning they are buying back stock right here," he said.

Or finally, you need to have companies that are so defensive in nature that if there is a worldwide slowdown, these companies will meet their expectations regardless, Cramer said.

If a company does not have at least one of these three protections, investors will not be OK for now, Cramer said.

Image placeholder title

Opportunity Still Knocks

After the "worst trading day in years," there is still something "beautiful" happening in a distant corner of the ugly market, Cramer told viewers.

He advised people to take this selloff as an opportunity to start buying financials -- in particular one of the five major brokers:

Merrill Lynch



Lehman Brothers



Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report


Bear Stearns



Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

. Cramer owns Goldman for his charitable trust,

Action Alerts PLUS.

For the first time in his memory, all five big brokers are "being run by great management," Cramer said, adding that a company's management can make or break its performance.

Here are the five "best run companies on Earth," and they are selling at a "major discount," a 30% markdown compared with the average stock, he said. This, Cramer said, will not last.

The thing that attracts him to these stocks now is that they've been getting killed for the past five days, Cramer said. "These are the kinds of pullbacks you need to be on the look out for," he said.

Cramer recommended that people start putting money into one of these names. "They will go lower before they come back up, but I'd start my position as they go down," Cramer said.

Out of them all, Cramer likes Goldman Sachs the most, calling it "the best run I've ever seen it." However, Cramer said he is in favor of people buying any of the five, and he urged market players to pick up one of these stocks as he believes that the management at each of these "top-notch" brokerage houses knows what its doing.

Don't Sell, Don't Sell

History tells market players that they should be ready to buy after a down day in the market -- if not immediately, then soon after, Cramer told his viewers.

The 9/11 selloff looked as if it was the end of the market, and during the crash of 1987, the market fell 508 points, the largest one-day percentage drop in history, Cramer said.

But a few months later, people who had panicked and sold everything wished they had bought something instead.

Today's drop is similar to the crash of 1987, Cramer said. While a Chinese selloff started the selling today, the German market caused it in 1987, he said. And just as the market did not reach a bottom the same day, Cramer believes that we have not seen the end of the selloff here, either.

"That is why people should be in a protected zone" and look for dividends and buybacks, he said. Cramer urged people not to panic, to keep a cool head and to be buyers. He said people should not buy all at once, not expect immediate gratification and be patient.

Otherwise, Cramer believes that three months from now, people who will have sold everything will wish they hadn't.

And Don't Buy ...

Cramer welcomed James Morgan, the president and CEO of


(DAKT) - Get Daktronics, Inc. Report

, to the show and asked him why people should buy the stock after the company's recent miss.

In terms of the quarter, though it was on target, the disappointment was related to the projection Daktronics gave for the coming quarter, Morgan clarified.

He added that the underlying drivers of the business are still intact and that Daktronics has "invested a lot of capacity to be able to respond to growth" that the company anticipates.

"One of the limiting factors is getting though the regulatory constraints that exist," Morgan continued. Although there is a very good revenue model with digital billboards, limiting constraints on how quickly the billboards can get deployed are a reality, he said.

Cramer said he is on the fence regarding the stock and put Daktronics in the "don't buy" camp for now.

To view Cramer's interview with James Morgan, please click here.

TheStreet Recommends

Lightning Round

Cramer was bullish on


(CELG) - Get Celgene Corporation Report



(T) - Get AT&T Inc. Report


J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report


Procter & Gamble

(PG) - Get Procter & Gamble Company Report



(CL) - Get Colgate-Palmolive Company Report



(DEO) - Get Diageo plc Sponsored ADR Report






(HLT) - Get Hilton Worldwide Holdings Inc (HLT) Report


Cramer was bearish on

Pain Therapeutics



(CRM) - Get, inc. Report


Retail Ventures

(RVI) - Get Retail Value, Inc. Report


Playtex Products

(PYX) - Get Pyxus International, Inc. Report


Choice Hotels International

(CHH) - Get Choice Hotels International, Inc. Report


For more of Cramer's insights during the Lightning Round, click here


Want more Cramer? Check out Jim's rules and commandments for investing from his popular book by

clicking here


At the time of publication, Cramer was long Goldman Sachs and Diageo.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.