Cramer's 'Mad Money' Recap: My 4% Trading Rule (Final)

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NEW YORK ( TheStreet) -- "It's time to embrace the craziness," Jim Cramer commanded his "Mad Money" TV show viewers Wednesday.

Cramer said he's heard enough whining about the volatility of the markets and insisted it's time to start using that volatility to make some money.

Cramer explained that volatility in the markets is the new norm and investors "need to get used to it." In today's market, he said, swings that used to take days, or even weeks, can happen in the blink of an eye. So how can investors take advantage of it?

Cramer said he's still a fan of dividend stocks, which offer protection as stocks head lower. He's also still a seasonal fan of the tech stocks, which have rallied in nine of the past 10 fall seasons. But Cramer also introduced a new way to trade, calling it his "4% Rule" for volatile markets.

The 4% Rule is simple, he explained. When the markets are up 4%, sell something, when they fall 4%, buy something. He said as long as the stock in question won't get hurt by a collapse in Europe, then that stock would fit this rule.

Cramer cited Walt Disney ( DIS) as one stock that fits the 4% Rule. He said the selling in Disney has been ridiculous, as Disney has nothing to do with Greece or Italy nor China. So when Disney shares fall by 4%, "buy 200 shares," said Cramer, and when it rallies back up, "sell them."

The old days are long and gone, Cramer concluded. Investors need to embrace the volatility and start profiting from it. "Enough complaining," he said, "go make some money."

Tougher Regulations Needed

Cramer spoke with Sen. Bernie Sanders (I., Vt.) on the role of speculators in controlling the price of oil and why the Commodity Futures Trading Commission (CFTC) has not imposed new regulations on oil futures despite being required to do so by law.

Sanders said simply that the CFTC has chosen to listen to Wall Street instead of regular people on the issue of oil futures and has ignored the law which requires tougher regulations. Sanders, along with Cramer, both called on President Obama to demand the CFTC raise margin requirements and impose limit positions in order to crack down on the rising price of oil.

Sanders said the price of oil is clearly being manipulated, yet the president was forced to open the strategic reserve to lower gas prices rather than impose new regulations. He said that there is more oil supply than two years ago, and less demand, yet the price of oil has only dipped slightly after rising precipitously earlier this year.

Sanders explained that as much as 80% of all oil futures pricing is controlled by speculators and not by demand. He said the country needs strong rules to combat this speculation. Sanders called on citizens to write the CFTC and ask why they haven't followed the law and introduced stronger rules. He said its clearly in the national interest to do so.

Entry Point for Eaton

Continuing with his "Paid To Wait" series of dividend stocks that work in a treacherous market, Cramer once again highlighted Eaton ( ETN), a stock which he owns for his charitable trust, Action Alerts PLUS.

Cramer said shares of Eaton have fallen 28% from its highs, 7% in just the last 30 days. That makes it an excellent entry point for a company that's delivered a 114% return, including reinvested dividends, since Cramer first mentioned Eaton in Oct 2008.

Cramer said at these levels, investors have priced in a full recession for Eaton, despite the fact the company is far less cyclical than it once was and now has its hands in everything from aerospace to autos to hydraulics and electrical components. Shares of Eaton now trade at just 7.8 times earnings, or a stunning .6 times the company's growth rate. Eaton now pays a 3.6% dividend yield.

There are many things to like about Eaton, said Cramer, including the company's stellar balance sheet, it's bankable leadership and its cost controls. Cramer recommending buying in increments, using the company's dividend yield as a guide, as the markets trend lower. He said to buy some now, then more as the yield hits 4%, 4.25% and so on.

Am I Diversified?

Cramer spoke with callers to see if their portfolios have what it takes. The first caller's portfolio included Union Pacific ( UNP), Ventas ( VTR), Exxon-Mobil ( XOM), Eaton ( ETN) and Polypore ( PPO).

Cramer said "Bingo," noting this portfolio was "well played."

The second caller's top holdings included Honeywell ( HON), International Paper ( IP), Unilever ( UL), DuPont ( DD) and Ensco ( ESV).

Cramer said this portfolio was also properly diversified.

The third caller had Annaly Capital ( NLY), Verizon ( VZ), Caterpillar ( CAT), McDonalds ( MCD) and Tiffany ( TIF) as the top five stocks.

Cramer said he was also a fan of this portfolio.

The fourth caller's top stocks were Southern Copper ( SCCO), Goldcorp ( GG), AT&T ( T), Microchip Technology ( MHCP) and Home Depot ( HD).

Cramer also liked this portfolio, as it too was properly diversified.

Lightning Round

Cramer was bullish on Ensco International ( ESV), Seagate Technology ( STX), Fusion IO ( FIO), FirstEnergy ( FE) and American Electric Power ( AEP).

He was bearish on EarthLink ( ELNK), ReachLocal ( RLOC), Transocean ( RIG) and NRG Energy ( NRG).

Closing Comments

In his "No Huddle Offense" segment, Cramer told viewers that when it comes to stock prices, the creditors are really in charge. He said that most people simply don't realize how big and how powerful the credit markets are, and whether you're talking companies or countries, the bond holders have the power to make or break deals.

Investors who understand the credit markets, Cramer concluded, will understand why the stock market moves on every bit of credit market news.

--Written by Scott Rutt in Washington, D.C.

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To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here.

For more of Cramer's insights during the Lightning Round, clickhere .

At the time of publication, Cramer was long Eaton.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com 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 TheStreet.com, 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 TheStreet.com 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, TheStreet.com 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 TheStreet.com, 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 TheStreet.com. 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 TheStreet.com, 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.

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