There is one simple reason why stocks hit ridiculous levels on Wednesday, and Jim Cramer is ready to educate Cramerica on what happened. This one group of traders lurks out there, betting against the market, and nonprofessional investors who own stocks don't necessarily even know they exist.
Sure, most investors understand that when a company beats the sales and earnings expectations, analysts will raise their estimates, which could create more buying and therefore lead to a higher stock price.
And yes, they understand a company being broken up into pieces can also lead to higher prices, simply because individual companies are easier to understand than a big conglomerate with multiple business streams.
And, of course they know that activist calling on the business can also shake up the boardroom and pressure better stock results.
But, did you know there is something else that can drive a stock higher?
"Panicking short-sellers who bet against the stocks of companies that you own and then have to go buy those stocks back in order to stem their losses," the "Mad Money" host said.
Sometimes these short-sellers think that an event will turn out badly and bet against it. Then, when the event doesn't go bad or the real sellers don't dump their stocks, the stock starts going higher and higher. When the short-sellers can't take the pain anymore, they buy it back to cover their short position.
That was exactly what happened on Wednesday. In Cramer's perspective, some of the biggest moves on the market were caused by short-sellers.
Just take a look at Intel, which has been on the rocks lately. Most of its business is to make chips for personal computers, an area that has been declining rapidly. This company can't be saved by a weak dollar, and Cramer was horrified by how terrible the personal computer business was doing, as referenced on Intel's conference call on Tuesday.
However the earnings were ultimately a wash, as Intel racked up the profits in the strength of its Internet of things, mobile and cloud computing business.
So then why the heck was it one of the strongest performing stocks on Wednesday?
The stock rose because the short-sellers did not expect good news to happen with Intel. It has been the golden short stock all year, and patterns in the past sent it selling off hard when the market went down. Then Intel broke the pattern by announcing good news, and the stock rallied as short-sellers scrambled to cover their positions.
The worst area for short-sellers right now is the oil patch. Oil hit its high for the year on Wednesday, up 6 percent in one day. Meanwhile, the oil stocks have taken off like a rocket.
For instance, Cimarex was trading at $129 on Wednesday, up from $91 in January. The last time that Cimarex was at $129 was back on Sept. 22—when oil was trading at $91 a barrel!
And again, Cramer suspects that oil stocks have run so much because the short-sellers are freaking out and trying to bust their bets to cover the positions.
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Then there is Shake Shack, which just jumped to $60 in two days from $50 for no apparent reason. The only thing that's flipping on this stock is the burgers on the grill. The short-sellers are in pure terror right now, as real buyers are coming into the stock thinking it could be the next Chipotle.
"This is one of the greatest short squeezes I can recall. More than 35 percent of the float is short," Cramer added.
So no one knows when the short-selling will stop, but Cramer wants investors to get the real deal on what is going on. The market is not going up on any big news; it is simply driven by panicked short-sellers scrambling to cover their positions.
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