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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.
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.