Cramer says six things need to happen before the market sell-off can end

CNBC’s Jim Cramer provided a six-point checklist on Tuesday for what needs to happen before he’s ready to end 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. Cramer said the aggressive selling is in response to Wall Street buying too much earlier in the year on a bet that the Federal Reserve would lower inflation.

“As we get discouraging data on the inflation front, a lot of buying needs to be scaled back, which is why selling is so aggressive,” he said.

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

1. The accelerated rise in government bond yields must be curbed. The benchmark yield on 10-year Treasuries rose to 3.9% on Tuesday, while the 2-year rate 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 should recover, which Cramer says is on its way.
4. Banks need to stabilize. As long as interest rates don’t rise rapidly, Cramer said banks can create a lot of value by coexisting with higher rates.
5. Retailers need to identify the winners and losers of the industry. He pointed to Walmart, which reported positive fourth-quarter results, versus Home Depot, which reported disappointing fourth-quarter results.
6. The market should be much more oversold, as measured by the S&P oscillator, which helps guide investor behavior during times of major ups and downs.

“It’s a big job here. I don’t even know if we can get all six,’ said Cramer. “Unfortunately, this Presidents Day sale doesn’t feel like it’s over. But this checklist makes us feel really good. Until more of these boxes are checked, respect the sellers. You might even want to get involved.”