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Cramer: Meager advance appears mighty bullish

(Click for video linked to a searchable transcript for this Mad Money segment)

Although the Dow Jones industrial average and S&P 500 climbed modestly Tuesday, dig down into the market action and Jim Cramer says you'll find considerable bullish developments.

"This is what a bull market is supposed to look like," Cramer said. That is, the market's advance wasn't sparked by a rotation into defensive stocks. And it wasn't generated by investors seeking yield. Instead, the advance was solid and fundamentally optimistic.

NYSE EuroNext flag hangs outside the NYSE.
Adam Jeffery | CNBC
NYSE EuroNext flag hangs outside the NYSE.

First, transports led the rally on Tuesday with United Parcel and FedEx breaking out. "An advance in these kinds of stocks says to Wall Street, 'Goods need to be shipped; the economy is getting stronger.'"

In fact, pros often view an advance in transports as confirmation of an advance in industrials. And a break out amplifies the message.

But it wasn't just the transports that Cramer found bullish.

The financials also rallied Tuesday. "Banks provide the credit needed for an economic expansion," Cramer said. Strength in this sector tells Cramer that growth remains very much on the table.

Then, digging down into the market, Cramer noted that the rally in Walgreen, Rite Aid and CVS were also quite positive. That's because Cramer sees the strength as a referendum on retail. "We've let a couple of large discount players cloud our judgment about the whole group, namely Wal-Mart and Target. I think that's a big mistake. Instead, drugstores are speaking volumes. They're telling you that people are still shopping, just in different places."

In addition, Cramer said the advance in high-end merchants such as Tiffany and Nordstrom was also quite optimistic, in part, because wealth has a trickle-down effect.

On top of that, he believes gains in Continental Resources, Cimarex and EOG are signs that the market is still betting on growth, but instead of leveraging high multiple stocks, it's turning to the oil patch. That's bullish because these rapidly growing energy companies are already profitable.

And he believes the ongoing string of mergers and acquisitions is also a vote of confidence in the future. "What could be better verification than the huge takeover offer from Pilgrim's Pride for Hillshire Brands, which comes right on the heels of the huge offer from Hillshire Brands for Pinnacle Foods."

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However, of all the healthy bullish developments happening in this market, perhaps none is more bullish or healthy than the market's ability to climb a wall of worry.

"At no point can there be joy and celebration of a rally or a new high. All of our biggest advances have come on the backs of gurus who emerge after a couple of down days and say they're scared or worried that valuations are too high and the whole edifice could come down," Cramer said.

He says that's critical because the negative chatter shakes out weak hands. "In turn, the investors who are left are true believers. And true believes can often ignite the next leg of a bull."

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