Tough Sledding Ahead

Pricing in a tightening is an emotional, embittered and crushing event for traders. But opportunity still lurks.
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In the bond market, pricing in a tightening is an orderly retreat from new highs -- it is almost bloodless in its methodical knocking down of price and concomitant increase in yield. In the stock market, it's an emotional, embittered crushing event, dragged out over a multitude of days with tons of recriminations, anger and heavy losses. The stock market's pre-tightening move reminds me of a surrounded, routed army trying to break out, left only with its handguns, a carbine and an occasional BAR. All the heavy weapons are left behind.

That's what last week's decline was all about. It was a grudging recognition that the

Employment Cost Index

was the opposite of what

Greenspan

and Company wanted to see when they went neutral on us. Not even a dovish comment from the

Washington Post's

John Berry, talking about slowing consumption -- confirmed by the vicious action in the autos, by the way -- can put those lost points back together.

Indeed, the disarray of last week's market reminds us that, in the end, if the

Fed

doesn't like the tape, we can't like the tape. I know it seems simplistic in a world of moving averages and dividend discount models and high P/E multiples, but when we think the Fed is pissed off, we do the job for them.

Has the job been completed? Oddly, no matter how much destruction the stock market undergoes, it is the data that controls. We will go down until we see weak numbers from the government.

So where does the opportunity reside? Where can we make money during this period? The trick will be to game when industry numbers -- far more reliable than the government -- foretell a slowdown.

Not much sign of one so far. But the action in some of the biggest cyclicals, the autos, tells me not to lose heart entirely. You don't get a giant decline in

DaimlerChrysler

(DCX)

, let alone a monumental selloff in

Ford

(F) - Get Report

, without the possibility of a slowdown being in the air.

Watch the autos and the retailers. Their continued decline might mean that the next hike is priced in. If so, it will be safe to go long again. Until then, it's tough sledding, even if we get the snapback rally that I am expecting some time this week.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.