Mad Money

The CEO as Leading Indicator

Cramer on Friday told viewers to look for potentially great stocks on the new-high list, but he warned against buying them until their share prices pull back. Of course, like any rule, there’s an exception that investors should keep in mind.

The "In" Crowd

“If you see insiders buying the stock when it’s at its 52-week high,” Cramer said, “then that’s a clear sign that you want in.”

There are few other signs of confidence in a business than management buying as the share price peaks. And while this is a rare occurrence, Cramer admitted, it’s even rarer for this strategy to not work out.

No doubt there are times when the C-level suite will buy their own company’s stock to give the impression of confidence, to create the illusion they’re doing better than they are, because they know the market will look favorably on the move. But the truth indicator here is the size of the transaction. It’s the volume of the insider buying that declares its sincerity.

Buying a stock at its high may be arrogant, Cramer said, but it’s “bankable hubris.” Corporate insiders aren’t fools. If they’re willing to go all in at that level, he assumes they know what they’re doing.

Plus, Cramer said there’s a good reason why insiders wouldn’t do this unless they were absolutely certain the stock still had room to run: It’d be reckless and lazy if they weren’t. See, most investors are smart enough to wait for a pullback before they buy, but insider buying says that management doesn’t think there will be one.

“There’s nothing more bullish than that,” Cramer said.

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