It's indisputable that we were about to take off in this domestic economy after a slow recovery from the recession.

The twin trends of a return to a slow climb in the value of housing as well as the renaissance of industry courtesy of cheap natural gas were enough to get things rolling. The lack of new construction, the age of the average car -- 11 years -- the need to be able to get out of your in-laws' house and buy housing of your own, something that had actually been put on hold, all of these had created what looked to be a sustainable recovery, despite the problems in Europe that were clearly worsening.

You don't get fantastic numbers for companies as varied as PetSmart (PETM), Cisco (CISCO), Home Depot (HD), Kors (KORS), TJX (TJX), as well as Boeing (BA), Ford (F) (domestic), Dow Chemical (DOW) (domestic) and pretty much every consumer packaged goods, aerospace, telecom and health play if things aren't improving. Yes, we can complain about the earnings, but the retail, restaurant, housing and auto industries were all doing incredibly well as recently as October and the question was going to be, I believe, how much longer can the Federal Reserve stay accommodative in 2013 if these trends pick up. It's really only the companies that have moved aggressively into Europe and those that depend on Asia for marginal growth that have been really hurting. And we have had enough hopeful signs in China for me to believe that 2013 could be a good year for the companies depending on the Peoples Republic of China for its recovery.

All of these trends meant that the most important statistic, the one that is most correlative to the stock market -- employment -- was going to turn up in 2013. That was going to be the elixir that made it worthwhile to be bold and buy aggressively.

Suddenly, all of that is out the window. Suddenly, none of it matters. Once again, Washington has pulled the rug right from underneath us and every one of those positives is now either being overlooked or simply doesn't matter because it is about to change for the worse.

That's what we saw Wednesday with that awful press conference where the president made it pretty clear that there is no hope for anything to happen quickly to resolve what 2013 is going to look like and we are going to see sharp increases in taxes and sharp declines in spending that can trump all of the good news we have been seeing. There's simply no need to hire and plenty of reason to fire until we get there and the smartest executives are going to be like Dave Cote from Honeywell (HON) and not hire to respond to the regular retirement quota that occurs naturally at big American companies.

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That means stage one is now upon us: the recovery will be broken by this logjam. That's what it does. I don't even know if you can refute that.

Stage one is hitting with brutal force and it is dragging the averages down quickly. Keep in mind that the Dow Jones is now only up about a couple of percent, less than many European stock markets, including France, and is up only about 1/6 as much as Germany. In stage one everything is guilty until proven innocent, including the companies that are just now reporting blowouts.

Stage two? That's when we try to figure if the selling is done or if it is overdone. The first means you have to pick, the second means you have to buy. The swiftness in which this is all happening, accelerated by hedge funds that remember how they lost their year last year very quickly by not acting, will make it so the selling runs its course before we run over the cliff.

But how do you monitor it to be sure?

Let me give you three ways that are going to put it in a workable context for you.

The first is the Washington-on-TV indicator. This is a simple, easily monitored and perhaps the most important of all indicators. That's when the president or any of the leadership from the Republicans or any of their important minions utters anything about the fiscal cliff.

Right now we know that we aren't on track for a resolution. Time, distractions (Petraues), rancor, they are all against a deal. There is no move to rise above yet.

That means every time someone comes on television you can expect the market to go down. Don't trust any initial bursts of optimism before or after a soundbite unless it is from both parties at once standing at a podium saying "we have a deal." Use Wednesday as a template. When you see or hear about a presidential event, be ready.

We will know when we are close to a deal or when we are done going down because the fiscal cliff is now "in" or fully discounted in the market. That's when we don't go down within the hour after a speech. That's it. That's what's been my indicator in all of Washington's impact on the market over a 30-year period. If we stop going down on talk, then we are at a bottom.

Second, we have the purest of pure plays out there in Lockheed-Martin (LMT). It is a total canary in a coal mine. It's a good company, despite the recent management upheaval, with an outsized 5% yield that will be worth much less after taxes after December.

It got hammered Wednesday, as it should. It will be right in the cross hairs of the government's crosshairs and the fact that it is up 8% for the year is totally absurd if we are going to go off the cliff. This one should be front and center at the upper left on your screen. It might as well be the thermometer for the market and it is a perfect one.

The third? Let's call it the Cisco, Home Depot and PetSmart indicator. These are the three biggest upside surprises since the election and they correctly capture discretionary retail, housing and technology spend. If these stocks cannot hold their gains, no stocks can right now except higher-yielding stocks that are regarded as recession proof, like Coca-Cola(KO), Kellogg (K), General Mills (GIS), Verizon (VZ) and AT&T (T).

• Also see: Cramer: Facebook rally not surprising 

Of course we have to monitor employment. We need to look at aggregate retail sales, transports -- they were hideous Wednesday -- and any of the broader commodities like copper and oil to monitor how deep the slowdown will be or if it just rolls right into recession, which is what the stock market's telling us is going to happen. No, that's not too dire.

But those three indicators will tell us if the bad news is in or not and will allow us to begin to speculate that the stock market itself has Washington worried and is therefore somewhat self-correcting.

Of course, there is an orderly path to make it so the slowdown doesn't occur and the cuts aren't all that harmful and the increases not all that hideous. That's why we were not tanking before the election. There was so much momentum going Romney's way in the market that the cliff's harms could be ignored.

No more momentum. No more Romney. No more ignoring.

So watch those indicators. Recognize that the good news is ephemeral and the bad news transcendent. Make some sales of economically-sensiti​ve companies of all stripes that don't have higher-yielding protection and watch those signs.

They will get you through this and, yes, we will get through this, even as we have to admit that the odds for going over the cliff have now increased greatly because the sniping's just begun.

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long BA and KO.

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