"The selling isn't finished," Cramer continued. Many insiders with locked-up shares are now in these names are now shorting other similar stocks as a hedge against their own. This weird yet common practice happens all the time and only puts more pressure on already struggling stocks.
Cramer said the the software-as-a-service, or SaaS, stocks should be renamed software-as-a-disservice to your portfolio, which would give them the appropriate acronym SaaD.
Follow the Money
Money is not leaving this market, it's just finding a better home, Cramer told viewers as he commented on the rotation out of the momentum names and into more traditional blue-chip stocks.
Cramer likened today's markets to those in March 2000, when money flooded out of the profitless dot-com names and into value names that reward shareholders with buybacks, dividends and acquisitions. Today that same pattern is happening, Cramer continued, as investors leave any stock that's valued by sales instead of earnings.
Stocks like Alcoa (AA) and PPG (PPG) have held up well in this selloff, Cramer noted, as the markets reward any company with real profits that's willing to return those profits to shareholders. That's why Apple (AAPL), an Action Alerts PLUS name, soared, while Amazon.com (AMZN) tanked.
Make no mistake, there's more pain to come in these momentum stocks, Cramer concluded, but those that care about their shareholders will reap the rewards.
For the next installment of "Cramer's Playbook," Cramer shared his many years of investing wisdom to answer the question of whether a traditional or Roth IRA is the way to go for someone in the 28% tax bracket.
Cramer explained that with a traditional IRA you contribute pre-tax income, then pay taxes when you withdraw the funds in retirement. Roth IRAs work the opposite: You contribute with after-tax income, then never have to worry about taxes again.