Cramer says six things must happen before the market selloff can end

CNBC’s Jim Cramer on Tuesday provided a six-item checklist of what needs to happen before he’ll be ready to declare an end to the market selloff.

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

“Now that we’re getting discouraging data on the inflation front, a lot of the buying has to be liquidated. That’s why the selling is so aggressive,” he said.

With the market swinging the other way, in what Cramer called a “Presidents Day selloff,” he said the decline may not just be a one-day affair. For the selloff to end, according to Cramer, six things must happen:

1. The accelerated growth in government interest rates must be slowed down. The benchmark 10-year Treasury yield rose to 3.9% on Tuesday, while the 2-year yield rose to 4.7%.
2. Anomaly stocks that trade disproportionately high, many of which are in the technology sector, need to go down.
3. Recession-resistant stocks like PepsiCo and Merck need to rebound, which Cramer said is on the way.
4. The banks must stabilize. As long as interest rates don’t rise quickly, Cramer said banks can provide a lot of value by coexisting with higher interest rates.
5. Retailers must identify the industry’s winners and losers. He pointed to Walmart, which reported positive results for the fourth quarter, versus Home Depot, which reported disappointing results for the fourth quarter.
6. The market must be much more oversold as measured by the S&P oscillator, which helps direct investor behavior during times of large 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 really good feeling. Until more of these boxes are checked, respect the sellers. In fact, you might even want to join them.”