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NEW YORK (TheStreet) -- The markets are in reset mode, Jim Cramer said on "Mad Money" Monday after another down day on Wall Street. That means investors need to sit tight and wait before starting to pick through the rubble.
Cramer said the markets are working like clockwork, digesting bad news exactly as they're supposed to do. Things were set into motion after the last non-farm payroll numbers signaled the beginning of a possible reversal. That news was followed by news that auto inventories are building, commercial construction may be stalling and retail sales are falling off a cliff. These sectors were driving the markets in 2013 but have all but vaporized this year, Cramer explained.
All of this bad news caused professional money managers to shift gears, rotating into technology, the financials and industrials. But with China seemingly on shaky ground and tech companies also showing signs of weakness, fund managers are once again shifting positions, sending stocks into a tailspin.
Cramer said he doesn't feel that our economy is headed back into recession, but that doesn't mean investors should be jumping back into the markets quite yet. He said major moves like this one take a few days to play out, and only then will it be safe to get back in.
As for what to buy into, Cramer said that stocks creating their own destinies through mergers and acquisitions and those with activist-investor attention are two areas that will quickly able to reverse the market's slide over the past week.
Thriving Biotech
As the markets continue to sell off, there's one sector that's only getting more attractive, Cramer told viewers -- biotech. He said the biotech stocks thrive in slowing economic times. Investors just need to wait for the short-sellers to get flushed out before jumping back on the biotech bandwagon.
Cramer once again recommended his "four horsemen" of biotech, namely Celgene (CELG), Gilead Sciences (GILD), Biogen Idec (BIIB) and Regeneron (REGN). He advised buying any of these names on continued weakness.
But the market selloff has also created opportunities in two, smaller biotech names, Isis Pharmaceuticals (ISIS) and Jazz Pharmaceuticals (JAZZ), which are worth $5 billion and $8 billion, respectively.
Cramer said both of these stocks were up by triple digits in 2013 and continued to soar over 25% in 2014 before getting crushed in recent days. With Isis down 9.5% and Jazz down 11%, both stocks now offer an attractive entry point.
Isis has long been a Cramer fave -- the orphan drug maker has no fewer than 28 drugs in its pipeline and tons of potential. Meanwhile, Jazz remains a very viable takeover target, which means the lower the stock goes the more attractive it becomes.
An Appetite for Sysco
With the markets now on day three of its selloff, Cramer said it's time to start considering what to buy when the storm passes. One company he likes is food distributor Sysco (SYY), which last month announced that it's acquiring the number two player in the industry, U.S. Foods.
When the deal was announced, shares of Sysco immediately shot up 26% as the markets realized that fewer competitors in the food business means more customers and higher margin for Sysco, which would control 27% of the market once the deal closes.
Cramer said that Sysco shares belong at a higher level because the U.S. Foods deal is transformational and will likely deliver more than the $600 million a year in synergies the company is expecting. Once the deal is completed Sysco will become the only choice for many restaurant chains, noted Cramer.
When it last reported, Sysco delivered a two-cents-a-share earnings beat, proving the company is doing just fine on its own, even if the U.S. Foods deal doesn't go through.
Lightning Round
In the Lightning Round, Cramer was bullish on Verifone Systems (PAY), Chevron (CVX), Nokia (NOK), Alcatel-Lucent (ALU) and American Tower (AMT).
Cramer was bearish on Mannkind (MNKD), LGI Homes (LGIH) and Krispy Kreme (KKD).
Executive Decision: Farooq Kathwari
For his "Executive Decision" segment, Cramer sat down on a posh set containing designer chairs with Farooq Kathwari, chairman, president and CEO of home furnisher Ethan Allen ETH (EA), which recently delivered a penny-a-share earnings beat on a 3.4% rise in sales despite the government shutdown and lousy weather in most of the country.
Kathwari outlined Ethan Allen's newest initiatives to become more relevant with customers. He said in today's market customers want instant gratification, which is why his company will begin offering on-demand items that are ready for delivery today. Meanwhile, the company will still offer customized versions of those same items, which can be designed with thousands of fabrics and options, for those who prefer to wait for exactly what they want.
Ethan Allen is also creating what Kathwari called a "sense of urgency" by stepping up its promotional efforts to increase traffic at its stores. Starting next month, the company will begin delivering direct mailers to more than three million homes.
When asked about the health of the American consumer, Kathwari said that while some companies may use the weather as an excuse, at Ethan Allen the company actually saw traffic at its stores increase -- but only in locations where it was warm.
Cramer said he is a fan of Ethan Allen's new initiatives and still likes the stock.
No Huddle Offense
In his "No Huddle Offense" segment, Cramer taught viewers how to deal with the pain of giving up gains -- or worse, taking a loss. He reminded them that deciding if and when to sell needs to be an unemotional process that involves homework and discipline.
If short, if a stock is likely to keep declining it's a sell, but if you feel that stock has bottomed it's time to start buying.
Case in point, IBM (IBM). IBM shares slid on a miserable quarter, and Cramer said the stock is a sell no matter why you may have bought it.
Meanwhile, Starbucks (SBUX) shares are also down, but the company posted a fantastic quarter and there's absolutely nothing wrong with the company. Starbucks is a buy at these lower levels.
Then there's Twitter (TWTR). No one really knows how Twitter is doing, and that leads investors to just "hope" things are well. "Hope should never be part of he equation," Cramer told viewers.
To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.
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-- Written by Scott Rutt in Washington, D.C.
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