The Dow on Wednesday broke through its 2010 peak of 10,725, closing eight points higher to mark its seventh straight positive close. The S&P 500 meanwhile registered an even better run, finishing up for the 14th straight day. Given this, some analysts might say the markets are too hot, but Cramer thinks they’re exactly where they should be.
How does he know? By using 10 tests to gauge the health of stocks.
It’s true that investors want to wait for share prices to pull back before they buy, and there’s no doubt that events will unfold, however negative, to cause that decline. But Cramer thinks this market overall is robust and strong. Here are his 10 key tells:
1. The transports are rallying. When this happens, it means that businesses are shipping goods, which in turn signals an uptick in economic activity. As a result, Cramer said, profits shouldn’t be too far behind.
2. The bank index is moving higher. A major exchange-traded fund, the Financial Select Sector SPDR , also hit a new high today. And like the transports, this should indicate an improvement in the economy. That’s because credit drives business, and the XLF’s upward trajectory means the credit situation is improving, i.e., there are fewer defaults and increased demand.
3. The market is responding to brokerage upgrades. In an unhealthy market, Cramer said, no one cares about an upgrade. But a strong Dow and S&P give rise to the kinds of moves we saw today in Lincoln National , which got a thumbs-up from Bank of America Merrill Lynch. LNC closed the session with a 4.4% gain.
4. Technology is always a great leader, and these stocks are roaring ahead. Apple , Oracle , Intel , Microsoft – all the bellwether names are on fire. Cramer said the driving themes of smartphones, faster internet and cloud computing should continue to carry the sector – and the market.
5. There’s a lot of cash sitting on the sidelines. Investors have stashed a good chunk of their money in bonds and CDs, Cramer said. Eventually it will have to work its way back into the system.
6. Even acquiring companies’ stocks are going up. Case in point: Massey Energy, which pushed higher after announcing it would buy Cumberland. In your typical down market, the acquirer gets hit when a deal is announced. But Cramer said the jump in Massey shows that Wall Street blesses the move.
7. Announced stock offerings push share prices higher. Again, traders usually react to secondaries by taking a stock down, thinking the deal will dilute value. But that’s not happening these days. Just look at the 5% leap in Hartford Financial , which today announced a big equity sale.
8. IPOs are jumping once they start trading on the open market. Demand for public offerings had faded, but as Financial Engines showed us today, it could be coming back. Shares of the company priced at $12, but immediately jumped to $15 at the open. That’s another sign of health, Cramer said.
9. The market’s got good breadth. What does that mean? Cramer defines it as the number of advances versus declines, and the former right now is growing. Just before the crash in 2008, the opposite was true.
10. The skeptics still rule. The Investor Intelligence bull-bear ratio, which polls key market analysts, shows that people are still negative about stocks even after the past year’s rally. That means there are a lot of bears that could turn bullish, which is a good sign compared its reverse. Too many bulls would be a sign of complacency, Cramer said, in the face of danger.
Cramer admitted that he is concerned about government spending, capital gains and dividend taxes and, yes, health-care reform, but he’s still bullish on stocks.
“My 10 touchstones that I’ve used for 30 years say this market is in good health,” Cramer said, “and they have rarely led me astray.”
Cramer's charitable trust owns Apple and Intel.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com