Given the incredible run that the stock market has had since the election, Jim Cramer thinks it is time to find out if there are any warning signs that the market should be taking more seriously.
The first flag to hit his radar was the Weekly Investors Intelligence survey of bullish and bearish newsletter writers. In its latest report, the number of bulls was at 60.2 percent, with only 18.4 percent bears and 21.4 percent anticipating a correction.
"When everybody's bullish, it means there is no one left to buy. A healthy rally needs plenty of bears who can be persuaded to change their minds," the "Mad Money" host explained.
Otherwise, stocks can run out of fuel. Historically, if the bullish percentage goes above 60 percent it is an indication that investors are getting complacent and the market is about to top out.
To find out if investors are getting complacent, Cramer spoke with Mark Sebastian, a technician and co-founder of OptionPit.com and Cramer's colleague at RealMoney. Sebastian is an expert when it comes to the CBOE Volatility Index (VIX), which measures the level of volatility that traders are expecting in the near future.
Many investors use the VIX as a proxy to determine the level of fear in the market. Right now that level of fear is very low, with the VIX currently trading around 12.
Typically the VIX tends to move in the opposite direction of the stock market. So when stocks rise, the VIX falls to represent less fear represented in the market, and vice versa.
However, Sebastian found something very bizarre occurred in the VIX at the end of 2016. Going back to the election, the VIX's behavior was very normal in the wake of Donald Trump's victory. As the rose, the VIX dropped lower.
Sebastian noted that while the market was down about 1 percent the last week of 2016, the VIX suddenly spiked more than 14 percent going into the long weekend. This is usually a very quiet period for the market, so he was concerned about the large increase in the fear gauge.
This suddenly reversed on Tuesday when the market popped and the VIX fell. Somehow it is now back to normal.
"Rather than being a genuine sign that we should be worried, it was more a factor of low volume, combined with some tax-loss selling and the fear of a New Year's terror event," Cramer said.
So, while the latest Investors Intelligence survey was a red flag to Cramer, Sebastian's read on the VIX indicated that the market is poised to head higher. Based on his analysis, he anticipates that a major reversal will not occur without a largely negative catalyst.