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With the stock market nearing the all-time highs it reached in January, CNBC's knows investors are starting to wonder if these levels are sustainable.
"Will it be smooth sailing? Or is it time to be afraid because we could be in for another February-style swoon?" the "Mad Money " host asked on Tuesday.
To answer these questions, Cramer enlisted the help of technician Mark Sebastian, the founder of OptionPit.com, Cramer's colleague at RealMoney.com and "Mad Money's" resident expert on market volatility.
Specifically, Sebastian focuses on reading the CBOE Volatility Index, more commonly known as the VIX or the "fear gauge." The VIX tracks monthly options to measure implied volatility, or the amount of uncertainty in the size and direction of changes in a market. Volatility is typically measured by the deviation of returns.
Sebastian started by looking at the daily charts of the S&P 500 and the VIX year-to-date. In a healthy market, these two indices should move in opposite directions; when the S&P rallies, the VIX should fall as investors' fears abate.
In January, the indices were trading in a troubling pattern. As the S&P climbed, so did the VIX, which eventually caused the S&P to tank in early February and bring about a market-wide sell-off.
But right now, things look better than they did at the start of the year. Sebastian noted that since June 27, the S&P has climbed nearly 5 percent and the VIX has fallen from 18 to 12.
"Sebastian says that’s a very bullish sign," Cramer said. "Unlike in January when the market was getting nervous about the rally even as stocks kept climbing, traders are not racing to buy put options to protect themselves against wild swings here. Just the opposite — they’re expecting a lot less volatility, not more volatility."
"In other words, this chart tells Sebastian that the smart money believes in this rally," he continued.
Sebastian's only caveat was that the drop in the VIX was a little odd. Things tend to get more volatile in the heart of earnings season, so the decline was unusual, though not necessarily concerning, the technician said.
"On the surface, Sebastian thinks this is a pretty positive development," Cramer added.
To find out what's going on beneath the surface, Sebastian inspected the charts of the VIX and the VIX's own Volatility Index, known as the VVIX.
He noted that the VVIX is holding steady near the 100 level, a sign that VIX traders are still a bit wary about playing the index. But if the VIX dips below 12 and the VVIX fails to decline with it, that would be a bad sign because it would mean volatility was about to go back up, Sebastian said.
"In short, if the VIX keeps going lower but the VVIX doesn’t come down with it, Sebastian thinks you should expect some choppiness in the stock market," Cramer said. "Although, to be totally clear, it hasn't happened yet, it’s just something he wants to look out for. At the moment, both the volatility index and the VVIX are painting a positive picture."
All in all, while February was indeed a painful month for the stock market, Cramer and Sebastian agreed that so far, the market doesn't seem to be following the same troublesome trend.
"The charts, as interpreted by Mark Sebastian, suggest that, unlike what happened in January, the S&P 500 is headed still higher — he thinks we could be making new all-time highs by the end of earnings season, and he wouldn’t be surprised if we get a second-half rally that takes the S&P to 2,900, maybe even 3,000, with some kind of positive resolution on tariffs and trade," Cramer said.
"My view? Based on what we’re hearing so far this earnings season, I think he’s got a point, but given the recent run, I am watching the VIX like a hawk for any signs like we got going into the late January because, wow, that peak and that February bruising? We've got to spot that before it happens."