Insider Trading: Bad; Insider Buying: Good

Sometimes a stock is so hot that you want to buy it wherever you can, as soon as you can, because it’s not going to go lower anytime soon. If you see insiders buying the stock when it’s at a 52-week high, that’s a clear sign that you want in, Cramer said. It’s rare, and it’s the exception rather than the rule, but pay attention when it happens. When insiders buy at the high, it’s a pretty good indication of their confidence in the business – and who knows the business better than the people running it?

Often, insiders buy small amounts of their stock to give the impression of confidence and to create an illusion that the company is doing better than it actually is. Be weary of this, Cramer said. The way to know if the insider buying is legit is when it’s big. If you see truly colossal insider buying, even if it isn’t at the high, then you should dig deeper. It’s the volume of the insider buying that declares its sincerity.

And when an insider buys a truckload of his own stock at its high, it’s definitely arrogant – but it’s bankable. Corporate insiders aren’t going to buy at the high unless they have some unshakeable conviction about their companies. Most investors know to wait for a pullback before pulling the trigger. But when insiders buy high, that generally means they don’t think there’s going to be a pullback. There’s nothing more bullish than that, Cramer said.

Bottom Line: When you see insider buying in a stock that’s at a 52-week high, Cramer thinks you should be buying, too.

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    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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