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Why are stocks falling like a stone? Cramer said the first reason is the Federal Reserve, which is now working against the economy instead of with it. Second is China, which continues to see a daily meltdown of its market, causing worldwide fears.
But more important that even China are the mechanics of the markets, Cramer explained. Big money managers look at stocks like Apple (AAPL) , a stock Cramer owns for his charitable trust, Action Alerts PLUS, and ignore everything the company has going for it, opting instead to liquidate their positions in the hopes of buying it back lower in a few days.
Given the big positions these funds have, the selling pressure is enormous, Cramer said, and until we see that crescendo moment where everyone just gives up, the selling will continue.
What History Tells Us
Regardless of what happens in China, the impact to our markets will be slight, Cramer told viewers. At least, that's what history tells us.
Cramer said part of being a good investor involves knowing your history and looking for patterns that apply to today. You only need to look back to August of last year to find when the Chinese government took a stand to prop up their Shanghai index at 3,000. It looks like tomorrow they could test that limit again.
So where were U.S. stocks back in August? The Dow Jones Industrial Average was a full 1,200 points lower than where it is today. In fact, only five Dow stocks are below their late-August levels and that's worrisome, Cramer noted, given the declining fundamentals of those that do business in China.
For a stock like Boeing (BA) , which has Chinese exposure, the company's current valuation seems suspect, and the stock's August lows could be retested again in the coming days.