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Cramer: Is market saying Iraq conflict has peaked?

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(Click for video linked to a searchable transcript of this Mad Money segment)

Chances are you're hearing news report about escalating tension in . Jim Cramer, however, can't help but wonder if the market is sending a different message.

He thinks events in Iraq right now may be similar to events in the Ukraine a few months ago.

"All you kept hearing was the phrase 'tensions escalate.' The only thing is that tensions stopped escalating even as reporters continued to say they were being heightened," Cramer noted.

Kurdish Peshmerga forces stand guard in the oil-rich city of Kirkuk against Islamic State of Iraq and the Levant (ISIL) on June 17, 2014.
Anadolu Agency | Getty Images

Looking inside the market now, Cramer can't help but notice rallying and oil retreating. That kind of price action shouldn't happen if tensions are, infact, about to escalate in Iraq.

Although he concedes the situation is fluid, Cramer thinks the market is saying something very different from the news reports; he thinks it may be saying insurgents in Iraq might have finally met their match.

And looking at developments on the ground, he thinks the conclusion makes sense.

According to reports, "The rebels seem to have run into a wall made up of better Iraqi soldiers, Iranian regulars, including the fearsome Republic Guard, and the United States Air Force." There's no reason to think that won't hold.

Also, Cramer sees the advantage quickly shifting from the rebels to Iraq and its allies.

As the rebels made early incursions, the U.S. couldn't use its military might to bomb populated areas. "The big oil fields south of Baghdad, however, are a different story," Cramer said. "They are on gigantic plains and rebels would do very poorly out in the open on clear sunny days when the U.S. Air Force is roaming around looking for targets."

All told, Cramer thinks there's every reason to believe events in Iraq may have reached the high-water mark.

"And that's why I think the airlines gained while oil stocks retreated. It's also why retailers including Home Depot and Target rallied. All of those stocks were beginning to factor in $5 gas. But if the oil fields are safe and the oil workers are staying at their jobs. and the situation is starting to come under control, then the assumption was mistaken."

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In fact, with rates ticking higher on Tuesday, which is broadly bullish for financials, and gasoline potentially going lower for reasons outlined above, then Cramer thinks the market may be facing a massive short squeeze, broadly.

"I can see pros scrambling to cover their short positions. If Iraq quiets and rates increase, then it's quite possible bears will lose important pillars in their case for doubting the bull. "

Call Cramer: 1-800-743-CNBC

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