Jim Cramer says six things must happen before the market sell-off can end

CNBC’s Jim Cramer on Tuesday gave a six-item checklist for what must happen before he will be ready to declare an end to the market sell-off.

The Dow Jones Industrial Average and the S&P 500 had their worst day since Dec. 15 on Tuesday, with every sector closing lower, especially consumer discretionary stocks. Cramer said the aggressive selling is a reaction to Wall Street buying too much earlier in the year on the bet that the Federal Reserve would lower inflation.

“Now that we’re getting discouraging data on the inflation front, much of the buying, well, it needs to be unwound. That’s why the selling is so aggressive,” he said.

As the market swings the other way, in what Cramer called a “Presidents Day sale,” he said the downturn might not be just a one-day affair. In order for the sell-off to end, according to Cramer, six things need to happen:

1. The accelerated rise in Treasury yields must slow down. The benchmark 10-year Treasury yield increased to 3.9% on Tuesday, while the 2-year rate rose to 4.7%.
2. Anomaly stocks that are trading disproportionately high, many of which are in the tech sector, need to come down.
3. Recession-resistant stocks like PepsiCo and Merck need to rebound, which Cramer said is on its way.
4. Banks need to stabilize. As long as interest rates do not rapidly spike, Cramer said that banks can bring a lot of value by coexisting with higher rates.
5. Retailers need to identify the industry’s winners and losers. He pointed to Walmart, which reported positive fourth-quarter results, versus Home Depot, which released disappointing fourth-quarter earnings.
6. The market needs to be much more oversold as measured by the S&P oscillator, which helps direct investor behavior in times of big upswings or downturns.

“It’s a tall order here. I don’t even know if we can get all six of these,” Cramer said. “Unfortunately, this Presidents Day sale doesn’t feel like it’s over. But this checklist will give us a real good feel. Until more of these boxes get checked, respect the sellers. In fact, you might even want to join them.”