[Beginning of Cramer's verbatim comments for this segment...]

Jim:           People know that the highest mountain on earth to climb is Mt Everest… but the hardest, the most treacherous, that is easy… it is number two, Everest’s smaller partner… known as K-2... why… for one, it is parabola… that is the most frightening shape on earth… the one that often leads to climbers falling off a cliff… that is a telling picture… funny thing though about parabola’s… they aren’t just found in nature… some are man made… every bit as frightening… take a look at this man made parabola… look familiar… just like K-2 isn’t it… that is a chart of the Nasdaq from July 1999 until February of 2000.. . thrilling, right… just like K-2... but when we look at the other side of the mountain… March 2000 until September 2001, see what happens after a man made parabola… steep fell off… nightmarish to climb… nasty… hopefully, never ever to be repeated...

Now, if you take them together… the pre and post Nasdaq crash… and then we take a look at K-2... we see how the man made parabola is ever bit as dangerous to you the investor as the treacherous slope of the world’s most dangerous mountain… alright, so what is all of this about… what point am I trying to make… who do I think I am, Sir Edmond Hillary… big Jim Whitaker.. no, I am trying to put today’s sell off in a place where you can understand why it is so important… and important sell off if you are a bull… I am not trying to put a good face on a market that saw a decline of 186 Dow points, and an S&P retreat of 24 points… the losses are heavy… I know you took a beating.

ActionAlertsPlus.com, my charitable trust, took a beating… so I know that you may have, well let’s just say maybe you were riding it too… I tried to scale back… it is difficult… but what I am is saying is that it may be difficult but the losses are actually necessary to avoid… that is right last week I was on "Squawk on the Street" talking about the need to get at least a 3% correction going here… then I talked again on this show how 3% to 5% would be terrific… I was thinking maybe it would be shallower than that… but you now what, it would be terrific.. .you know why… because it breaks the parabola… we have had a remarkable run… a 45% run from the bottom in such a short time… that when you get together with pros, my old colleagues, which I do all the time… you heard, just whisper, the word parabola… I hope we are here… some fear that we are here.

When you go to RealMoney.com, it is the paid site of TheStreet.com where I am chairman and write a blog, you heard parabola creep into the dialogue… guys going back and forth mention it, because it is a curse word… we all know what it means when a market goes parabolic… it means that there could be a crash on the other side… now nobody who is in the market, all in, ever wants any of these days… today was a day of pain… creates tremendous angst… creates losses… unless, of course, you were scaling out into the top of what was happening last week… or shorting stocks… but if we break the parabola with a gentle contained 3% to 5% decline, my prediction, that means that we should not be facing the top of K-2 or a K-2 style parabolic slide… today’s pain could be just the thing to break the parabola… which would then prevent much larger losses in the future.

Does it immunize against it… yeah, that is the way that it has been in my lifetime… so here is the question, as the sell proceeds and it breaks the parabola… what is the right base camp… 1, 2, 3, 4, what is the right oxygen level… where should we be… will we fall back to Dow 8000, maybe 8500... XPS bottom at 666... will we go back there… now there is a growing perception, I heard it all weekend, I heard it after Friday’s sell off… that we do not belong above Dow 9000 at all… we do not even belong above Dow 8000, I heard that… but I do not know if I can agree with that… where are we headed, back to base camp 1 where the move started… that is in March… how do you answer that kind of question… I like to be a little rigorous about it frankly, I like to compare where companies are now relative to where they were when the decline began a year ago… and that is what puts in context… I think that that helps us to understand where we will be 3 months from now.

Remember, we had a monster move in July, one that because of the huge number of advances vs. declines signaled that any sell off would be contained… the last three times that we had this data, we had contained sell offs before another climb… we will not be falling off of a cliff… the gentle climb could be in store for us… that is what we want… none parabolic… makes sense… makes sense to me because not everything is bad… in fact, I know that it is hard to see on a down 186 day but a lot of things are good… let’s take retail… I spent the weekend because I am a very interesting and lively guy reading the conference calls of every single major retailer that reported last week… in part because of what I now regard as the urban legend of the obliterated back to school season… I came back scratching my head… there will be a back to school season… I think it will be down from last year…. but that was slightly inflated from stimulus checks… if anything the big surprise given how horrible everything is supposed to be is that I expect back to school sales to be down only 5% to 7%… in that range, and not more than that… that is not horrible… remember, retail has no China exposure… and China was the source of today’s sell off… given the new frugality that every retailer is talking about… the buy now to wear now attitude in the sense that nothing fancy is worth it… you have to expect that same store sales will be down… honestly, how could they be up… is that what people expect… that the same store sales year over year should be up… given the incredible decline in employment.

More important what is so outrageously bad about being down 5% to 7% if the stock market is down much more… the retailers are down much more… we just came thru the most difficult point for the US economy in 75 years… and we are going to be down 5% to 7% in retail… I regard it as miraculous.

I also heard a lot of talk last week how car sales are borrowing from other retail purchases… robbing Peter to pay Paul… or Ford as the case may be… that is right, not buying that turtle neck because you want to buy a car… umm, not picking up that pair of Teva sandals because you are thinking about getting a Ford… now I have not heard a single executive say that… I mean to me it is ridiculous… this is a tale told by many idiots full of sound and fury signifying nothing… I mean maybe you have not had enough of the bar today… auto sales are better not worse… do not look thru it… you can look thru anything… don’t… people will buy, they will not buy a Ford instead of boots.

Okay, now it is true that the sales of many industrial companies I follow are down 20% to 25% from last year… the stocks are down 40%… but, more importantly, in the terms of where we are, in terms of the parabola being broken, I don’t know a single business that is actually getting worse… not in an industrial way… not one… and I am on a huge number of conference calls because I have nothing to do outside of this show… and I understand the endless drum beat of foreclosures… but, I mean anyone who is overwhelmed by the data showing 4,372% of homeowners are on deaths door… that is how I interpret it… or whatever… must immediately go listen to Bob Toll, the CEO of luxury home giant Toll Brothers… from his amazing earnings conference call last week, things are looking up in so many areas of the country that the idea that 39,483% of all homeowners including the ones that do not have mortgages are going to walk away… I mean isn’t that what the media is saying.

The numbers this year are so much better than last, do not look at these figures and aggregate… we have a rolling bottom in housing… and the worst areas… Orlando, okay, Braytonton, Inland Empire, Indio… not like Clint… there are the hardest… they are the hardest coming back… they were the hardest hit first, that is what matters… okay, I have to search for companies where things could get worse… and I came back to oil and natural gas, but Schlumberger, also known as Schlumberger, also known as Schlum… made it clear on its call that if oil stays at $70 all is well… that is why the $6 decline in oil in the last two days is the only thing that I have some fear about… natural gas is down big… but the political winds are changing rather fast there… I think we are going natural gases way… because of all of these good things… I can easily say, that we go higher after this shallow sell off… did anyone say that today… I did not hear them.

The operative word is shallow… that is right, my biggest fear the parabola may not be occurring… and is what I most worry about, it is the parabola… it may not be develop precisely because of the sell offs like the one that we had today.

Here is the bottom line…

▼   ▼   ▼   ▼   ▼

The Bottom Line!:     If things aren’t so bad… I do not know, did you give your house away today because it was worth much less than the mortgage… I kept it, silly me, I kept the house… I actually live in the house… maybe that is a good reason to keep it… anyway, if things aren’t so bad and they really aren’t… who says the market is in a dangerous K-2 parabolic situation… why can’t we rally after this decline… have no fear of the parabola… the way that I see it, today’s decline broke it… and things are primed after a little more sell off… they are primed to get better.

[verbatim recap]

[end of segment]

Read Jim's next Segment here