So, here's what has to happen. First, stock prices come down. I mentioned 1643 on the S&P 500, but maybe it goes down as low as 1610 if the 10-year keeps going higher (the iShares Barclays 20+ Year Treasury Bond Fund ( TLT) still looks like a short to me). Second, expectations come down. That's what's happening now, a real ratcheting lower of estimates. Third, when that process is completed, rates should stop going higher and better reflect the slowing economy. Fourth, internationally oriented stocks do better because Asia and Europe are getting better, not worse. So, they are the places to go into the weakness. Those and the stocks that have little cyclical exposure that have come down enough -- like ConAgra ( CAG), PepsiCo ( PEP), Kimberly-Clark ( KMB), Johnson & Johnson ( JNJ), Clorox ( CLX) and Colgate-Palmolive ( CL) -- will become buys. This process might be more gradual than today's prices indicate, if only because a lot of money is still on the sidelines and a lot of hedge funds need to catch up. But it is the odds-on scenario, and it must be prepared for.
That doesn't mean it can't switch on a dime. We saw rates top out and we had a terrific equities rally after they did. However, we now know that estimates are too high for the companies reporting now, and that means we will even give a haircut to companies that reported good numbers as recently as a month ago. Action Alerts PLUS has an extremely high cash position. We are looking to redeploy in precisely the multinational kinds of companies mentioned above. We don't have to sell to do so. But if you don't own the "right" stocks, you need the bounce this market keeps giving you to reconfigure, unless you can take some pain while expectations and earnings estimates and valuations are ratcheted down to what can only be called more "realistic" levels. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long CSCO.