This stock market is 'toppy' — not bubbly — and there is a very big difference

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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We're no longer recording the audio, so we can get this new written feature to members as quickly as possible.) Bracing for a decline? The market has been a bit sluggish for the last two sessions after reaching a record high on Friday. Even though the S & P 500 is only down a bit more than 1% from its all-time high, we have become more guarded due to the sudden and steep increases in certain stocks. This has led us to raise a caution flag, at least for the short term. Although some are claiming that the recent price surge in stocks with AI ties indicates an emerging bubble, we don't think that's the case. What we are warning about instead is some of the topping action that has formed. It's important to differentiate between the two. "This is not bubbly, it's toppy and there's a very big difference," Jim Cramer said. "People keep confusing them. We have pockets of worrisome action. The market is going to attack different areas of over-extension. The charts will develop right shoulders and people will fear the patterns." For the uninitiated, "toppy" is financial slang for a stock market that climbs to new highs and then falls back. Bubbly, on the other hand, refers to a period when stock prices greatly exceed the fundamental value of their underlying companies. He added: "They will go after stocks like Super Micro , which continues to trade in erratic patterns. Celsius is totally nutty. They will go after Gitlab because it guided poorly. Take-Two Interactive is worrisome too. Target was down $5 yesterday and today it is up $19. Do you really need to pay up $19? Toppy, toppy, toppy." If the market is indeed toppy, what could happen over the next few weeks is a shakeout of some of this excess froth. Healthy pullbacks happen every year, but feel horrible when going through them. The bright side is that pullbacks tend to create great buying opportunities in high-quality companies, and we've positioned the portfolio to be ready for such declines by maintaining a large cash position. Pockets of green: While many big-name tech stocks traded in the red, not everything sold off. The energy, consumer staples, utilities, and financial sectors were positive despite the weak market action. Some of this outperformance could be explained by the move in interest rates, as these dividend-heavy sectors get a little more attractive when the 10-year yield falls. But these stocks also tend to be less volatile on a day-to-day basis. So when there's a lot of profit-taking action in the high flyers that may have been over-extended, money tends to rotate back into these groups for their stability. Later: Earnings after the closing bell include CrowdStrike , Ross Stores , and Nordstrom . A good number and bullish commentary from Crowdstrike could turn around the cybersecurity group, which has suddenly become controversial after a big run over the past year. Speaking of controversial, Foot Locker reports Wednesday before the opening bell. After a stretch of heavy promotional activity, we're most interested in seeing if the sneaker and apparel retailer managed to clear its excess inventory, paving the way for a fresh start in 2024. If they didn't haven't, margins will continue to be pressured. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. David Paul Morris | Bloomberg | Getty Images