Jim Cramer on planning for a market rebound from the sell-off: 'Take something off the table'

  • "When we rebound from this sell-off … I'm insisting you take something off the table … because it's rational," CNBC's Jim Cramer said.
  • "I'm telling you to have some discipline. I expect this market to have a near-term bounce, and discipline means you should sell something into that rebound," the "Mad Money" host said.

CNBC's Jim Cramer on Tuesday gave his key takeaways from the three-day market rout that has brought high-flying stocks well off their highs in the face of a coronavirus pandemic.

"When we rebound from this sell-off … I'm insisting you take something off the table … because it's rational" to do so, the "Mad Money" host said. "When you win big at the casino, you don't go all-in on the next hand, you cash in some of those chips and buy yourself a nice sweater."

The major averages all tanked as institutional investors rotated money from the tech stocks that have posted outsized gains compared to the rest of the market. The Dow Jones dropped 632 points, or 2.2%, to 27,500.89 and the S&P 500 dragged down 2.8% to 3,331.84. The Nasdaq Composite cratered more than 4% during the session, which put the tech-heavy index in correction territory, or a 10% decline from its record close.

Facebook and Amazon each fell more than 4%, Microsoft dropped about 5% and Apple declined by almost 7%. Tesla was the most notable loser on the day, draining 21% of value in its worst day of trading.

Money is rotating into cyclical plays — the companies that perform better in an improving economy — and the moves are disrupting the indexes, whose gains have been powered by the tech frenzy, Cramer said.

"I'm telling you to have some discipline. I expect this market to have a near-term bounce, and discipline means you should sell something into that rebound," he said. "Not because the sky is falling — it isn't — simply because letting all of your gains ride is insane. By all means, leave something on the table … but I do want you to play with the house's money if you're up huge."

The host offered the following takeaways and tips for investors to remember when approaching the market in the coming days:

  • "When the market goes up this far this fast, you're going to run into stocks that can't rally even when they report great results," Cramer said.
  • "We're witnessing a rotation that's all about a return to normalcy," including to airlines, restaurants and retailers, Cramer said. Institutional investors "swap into companies that thrive when the economy accelerates, the cyclicals. Problem is, tech's gotten so big and the cyclicals have gotten so small that this rotation's crushing the averages."
  • "When we get back from Labor Day in an election year, politics becomes front and center. Right now. Biden's leading, and while he's no Bernie Sanders — if anything, Biden's about as business-friendly as a Democrat can get— he still wants to roll back Trump's corporate and capital gains tax cuts," Cramer said. "That means lower earnings per share and lower net profits."
  • "There's so much money in so few stocks, amplified by so many stupid ETFs," he said, "it's entirely possible for big declines in Tesla, Apple, Microsoft, Amazon, Facebook to pull down the entire S&P 500."

Disclosure: Cramer's charitable trust owns shares of Microsoft, Apple, Amazon and Facebook.

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