After a nasty selloff in the market, in order for stocks to move higher they will need to have cash to fuel a rally. Jim Cramer has seen that sometimes that fuel can come from retail investors who have been waiting on the sidelines and ready to put that cash to work, and sometimes it comes from a scary stock rotation.
"When money is flowing into stocks, with the mutual funds buying in endless waves and the hedge funds desperate to won stocks rather than shorting them, then you're in the land of the thousand bull dances and you don't have to worry about where the fuel for a rally is going to come from," Cramer said.
However with no money flowing into the market, Cramer has seen that powerful moves in stocks and sectors can occur. This is because when investors are reluctant to invest, money will be pulled out of the least exciting groups of stocks, and rotates into sexier names with more lift.
But here is the problem with rotations: without new money flowing in, gains often become zero-sum and will run out of fuel. The leaders will run out of steam with nothing to drive them higher, and that's when the worst possible rally can occur—a rally in the wrong stocks.