How did this market bottom? What changed to bring about another magnificent day for the bulls? Every requirement was met for the derailed bull to get back on track, and it did so with record speed. Earlier during the market slump, I created a list of 10 things that would produce an investable bottom. I will use the checklist to explain why bottoms occur.
I had set up 10 criteria and said we needed movement in all 10 to make this market take a U-turn. Almost instantly, my Twitter account (@JimCramer) was bombarded by people who called it an impossible set of circumstances that could never occur. People accused me of setting up a bearish wall that was meant to argue against a rally.
I retorted that I wanted to have a market in which one could actually own and hold stocks rather than trade or scalp. The bearish objections could be crushed. If that didn't happen, then treachery would return, and no move could be trusted. While the market was going into the sell-off, I used the word "treacherous" multiple times to describe the market, and I commented that the only way the market would cease being treacherous was to have each box on the checklist checked.
That is exactly what happened. That is why the market had bottomed, lost its treacherous nature, and become investable.
First, I said that we needed to see Ebola under control. I didn't say cured but under control. A week ago, panic had invaded and enveloped the stock market and the nation as a whole. Then, a curious and series of actions and results gave us faith that Ebola was under control in the country. Our panic was unjustified.
The first positive was that President Obama recognized the panic over the fact that the CDC had lost control of the situation. He realized it was time to bring in a czar to ride herd over the CDC, the heathcare system, and the military. He saw the need to make it clear that Americans were not facing a Steven King nightmare.
Still, I believe people would not be willing to travel, to go out to eat, or to do things outside of their home, if they felt this disease was more contagious than expected. Look back on the media coverage from a week ago, and you could find many articles about how the Ebola had mutated into a much more contagious form. This weekend, we discovered the primary cause of contagion: the CDC had been using the wrong protocol, and the stricken healthcare workers had not received proper instructions on using protection.
Meanwhile, everyone who had casual contact with the deceased Ebola patient got an all-clear. That's a check mark on the Ebola item on my list. This news had turned the travel, leisure and airline stocks back on. How vital was that?
The other big theme was the decline in oil. Money should have been taken from the oil-producing stocks to the gasoline-consuming stocks, but Ebola fears prevented that. Suddenly, a monster reversal began in retail, airline, and travel.
All of these stocks had been heavily shorted, since many skeptical hedge funds didn't believe the Ebola fear could be contained. They were wrong. There will be more Ebola cases, but the government will be ready.
Second, by the end of last week, every single group of stocks was hit. Not even the utility, drug, and consumer products stories could escape the beating. Remember, every single group had to be crushed before a bottom could be formed. That is exactly what happened.
Third, we needed to see a halt in speculation. The disappointment in Netflix (NFLX) and its huge fall formed the last big spec. At that point, that box on the list was checked. All of the specs are once again freed to go higher, and that's precisely what's happening. Once they've been broken, they can regroup and go higher without risk to the market.
Fourth, we needed oil to find its footing. In retrospect, other than Ebola containment, this concern turned out to be paramount. The amazing job-producing energy renaissance was in jeopardy. Since then, oil seems to have settled into precisely the point at which consumers get their equivalent of a tax cut, while the producers can still make money. That is why the stocks of both the buyers and sellers of oil rallied today.
Fifth, technology needed to stabilized, and it did. The decline in technology started when Microchip (MCHP), a semiconductor company that made chips in all sorts of gadgets, blew up. Since then, there had been nothing but upside surprises from the likes of Skyworks (SWKS), Micron (MU), Texas Instruments (TXN), and Apple (AAPL). The upside surprises were numerous enough ease the pain that came from IBM. Even Google (GOOGL), punished by disappointment, is now on the mend.
Sixth, sanctions against the Russians had to stop. That hasn't happened yet, but we discovered that Germany might have to work on stimulating its own economy and that of Europe. Enough German officials have signaled stimulus to blunt the economic impact of sanctions, and it's not necessary for sanctions to actually stop to have an effect on the U.S. market.
Seventh, we needed to see companies beat earnings and boost guidance, and we have seen so many since I had started the checklist. These companies include industrials. I have a whole segment later in the show devoted to them.
Eighth, the technical indicators had to stabilize. Comments from technicians had not been sufficiently comforting, but I know enough about charts to say that I saw an all-clear when we didn't take out Wednesday's low. The support levels held, and an all-clear did happen, even if most practitioners of technical analysis hadn't say so.
Ninth, I wanted to see a China stimulus, and while it may not be visible, there are signs that it is happening. For one, gross domestic product number that came out last night was a positive surprise. More important, the Baltic freight index made a huge jump after stabilizing for a few weeks. That's the best measure of commerce in China, and it has gone positive.
Finally, I wanted ISIS contained. Sure enough, as if on cue, the Kurds stopped this band of thugs on their border, with the help of Americans.
I created this list during the worst part of this market's decline, saying that all ten of these concerns had to be addressed. They have been, and the market rallied. If the market comes down, you have to be a buyer rather than a seller of the stocks of companies that have performed remarkably. Given the tough tenor of the times, the large number of companies that reported good results came as a pleasant surprise.