Jim Cramer Says Investors Should Take Some Profits With Markets Ready To Cool

Jim Cramer Says Investors Should Take Some Profits With Markets Ready To Cool

CNBC’s Jim Cramer said the market could continue to stagnate after Wednesday’s slump and urged investors to cut some of their positions.

“It could still go well. I don’t want to scare you. I just think stocks need a cooling off period after this prodigious run, and we’re definitely getting one,” he said. “And you have to get something off the table.”

The market has been recovering since mid-June, buoyed by declines in commodities and cheerful inflation data in July.

However, the rally appeared to lose momentum on Wednesday, with major indices falling after mixed earnings reports from retailers and notes from the Federal Reserve’s July meeting.

The host of “Mad Money” outlined three reasons why he believes Wednesday’s market action could be just the beginning.

The market has been overbought

The S&P 500 Short Range Oscillator, a trusted indicator used by Cramer and CNBC’s Investing Club, helps predict when the market is overbought or oversold and positioned for a reversal.

The Oscillator has been overbought since late July, meaning the market may be in a pullback according to Cramer.

As a result, he advised investors to call the register from June of the stocks that have rallied with the rest of the market.

The Federal Reserve isn’t done raising interest rates yet

Cramer reiterated his warning on Tuesday that investors should not assume the Fed will be able to make a soft landing, especially when it is still battling inflation.

Central bank leaders indicated at their July meeting that they plan to continue raising interest rates aggressively until inflation shows a significant decline, although they could slow the rate of tightening.

“The Fed will be less aggressive than we expected two months ago, but they are still on the warpath,” he said.

He pointed out that the fall in gas prices and the excess inventory in shops indicate that inflation is falling and that house and rent prices remain high.

Cramer added that strong employment figures also indicate that the Fed still needs to cut inflation — and take the market with it.

There is too much foam on the market

The most disturbing indication that the market will fall is that there are too many stocks rising higher than they should, according to Cramer, because of over-enthusiastic investors.

As an example, he cited Bed Bath & Beyond, the most recent obsession of meme traders. Reddit traders piled up in the stock on Tuesday after activist Ryan Cohen placed a large bet on the stock, sending it skyrocketing more than 70% during intraday trading on Tuesday before closing the session at 29%.

While the stock closed 12% on Wednesday, the extended-hours retailer’s shares fell 14% after Cohen said he plans to get rid of his entire stake in the company.

“We could see another big relapse like we’ve seen after almost every other meme frenzy,” Cramer said.

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