Cramer’s Stock Picking Secrets Revealed

When Insider Buying Meets Heavy Short Interest

Investors pessimistic about the future of a company’s stock can choose to engage in stock shorting, a tool that allows them to make money when a stock goes down. However, this strategy can be very risky.

Heavy short interest in a stock means a lot of people think the stock is likely to go lower. So if company insiders come in and start buying shares, it’s as if they are drawing a line in the sand to say the stock will fall no further.

“This is an explosive combination and one that often leads to a short squeeze that sends the stock much higher,” Cramer said. “Shorts are smart, but they usually don't know more about a business than the insiders who run it.”

So if a lot of people are shorting a stock, but then management starts buying sizable amounts of shares, Cramer thinks it’s time to do some homework because the stock will likely go higher.

—Read on for Cramer's Top Dividend Stocks

Call Cramer: 1-800-743-CNBC

Questions for Cramer? [e-mail]

Questions, comments, suggestions for the Mad Money website? [e-mail]