If the latest round of earnings reports taught us something, traders are not always right when it comes to trade talks between the United States and China, said Cramer on Monday as the whisper of a potential trading session held in bay.
In particular, traders betting against stocks like Nike and Starbucks when conversations go south – usually assumed to be boycotted because they are clearly US brands – could have "China Trade" all wrong, he told investors.
"This earnings season has revealed some brutal truths about" China Trade "that just don't jive with the … conventional wisdom," Cramer said. "We seem like the winners, and the losers from the commercial war are obvious, but the reality is much more nuanced than that. Many companies that were to hurt themselves in the People's Republic have raised some amazing figures while others are being torn by increased competition or slow Chinese economy. "
White House officials have confused Wall Street with their statements on trade negotiations in recent months, sometimes signaling progress and sometimes suggesting that the two sides were still far from reaching agreement.
As a result, short-term tribal heads have had to follow their instincts, Cramer explained. When tensions appear to increase, they usually choose to sell stocks of top consumer brands, capital goods companies and technology giants, he says. Short selling involves trying to win at a bet that a company's shares will fall in the near future.
Nike, Starbucks, Estee Lauder and Yum China all tend to fall into the first short-selling bucket, but if you ask the "Mad Money" host, the strategy "just hasn't paid."
Click here for his full analysis.