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Cramer's 'Mad Money' Recap: A Divided Market

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NEW YORK ( TheStreet) -- "We need to vanquish all hope from this market," Jim Cramer told "Mad Money" viewers Tuesday.

Only then can investors safely start buying the sectors that are working.

Cramer explained that the markets remain divided, with some investors feeling a deal on the so-called fiscal cliff will be reached in time while others are expecting the worst.

That makes for a volatile market, said Cramer, one that can give big gains one day but take them away the next, as was seen by the likes of Darden Restaurants (DRI) , down 9.5% Tuesday, and Gap Stores (GPS) , down 10%.

Hopes were high just last week that a budget compromise could be reached, said Cramer, but over the past 72 hours those hopes appear to be fading. Some investors feel the whole fiscal cliff debacle is being overdone, while others feel we'd be better off with the mandatory taxes and spending cuts.

Cramer continues to believe the cliff is indeed a big deal and one that must be avoided at all costs.

But until all hope is lost and widespread fear sets in, Cramer said it may be too risky to buy any of the growth stocks he recommended on Monday's show, including (AMZN) and Ulta Salon (ULTA) .

When all hope is vanquished however, Cramer said not only can those growth stocks be bought, he'd also recommend the autos, including Ford Motor (F) , and the housing stocks, such as Toll Brothers (TOL) . Toll told investors today that new home formation cannot be kept artificially low forever.

Off the Charts

In the "Off The Charts" segment, Cramer went head to head with colleague Ed Ponsi over the chart of the retail sector to figure out why this group has been exploding at a time when the markets are less than a month away from higher taxes, the expiration of unemployment benefits and what will surely be a huge squeeze on the American consumer.

Using a daily chart of the Market Vectors Retail Index (RTH) , Ponsi noted that the retail group bottomed on Nov. 21 and has been on fire ever since. He said that bottom point represented a 50% retracement of the sector's previous rally and the MACD momentum indicator also predicted the swing to the upside.

Ponsi also went further, using an hourly chart to note that the retail stocks are now just 1% below their all-time closing highs, meaning there will be little resistance to the upside. He suggested adding to a position in the group if it either pops above $46 or pulls back below $45.

Cramer was skeptical of this view, however. He said while the retail group has been resilient, he's worried about individual company blowups, as seen in Wal-Mart (WMT) or Gap today. He said losses from these names would undo any upside seen in stronger names like Home Depot (HD) .

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