A rare combination of events in the stock market has convinced Jim Cramer that the market has risen on real strength, not just because investors are covering short positions.
"When you can find companies that could be conceptually undervalued and their stocks run on that, even when they were already expensive on an earnings basis, then you have a powerful thrust that sends us higher even before anyone has time to ring the register," the "Mad Money" host said.
The first sign of strength that Cramer saw stemmed from Apple, as he thinks the benefit of users switching from Samsung to Apple still is not reflected in the stock price.
"I think the phone remains supply-constrained ... and therefore the stock is too low," Cramer said.
Second, Cramer noted that deals for large companies swirling in the market have surfaced. The fact that stocks are still going higher, even though the companies are so large, is a good sign. NXP Semiconductor's stock continues to rise amid rumors that it will be bought by Qualcomm. Both stocks have been on fire, and Cramer thinks the deal will get done.
The Baltic Freight index, which Cramer uses to gauge the temperature of Chinese imports, is also up huge. Cramer saw this as the catalyst behind the rally in the rails.
Bond market equivalent stocks like Kimberly-Clark have suddenly bounced back, too. Cramer recommended investors use the opportunity to buy PepsiCo.
The last sign came from huge trading volumes of Whole Foods' stock. The stock rose almost 5 percent on Thursday, driven by rumors of a takeover from Kroger. The volumes indicated to Cramer that investors believe the franchise is undervalued, unlike what happened with Netflix.
"Why does this matter? Because on core-earnings, neither Netflix nor Whole Foods is inexpensive," Cramer said.
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