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The fear gauge and strong earnings tell Jim Cramer this bottom in the stock market may be real

Key Points
  • The Cboe Volatility Index and strong earnings reports from key companies helped stocks recover intraday on Tuesday, CNBC's Jim Cramer says.
  • Thanks to a number of positive drivers, the end-of-October selling could be tapering out, he adds.
Fear gauge, strong earnings tell Cramer this bottom in market may be real

The Cboe Volatility Index, also known as the stock market's fear gauge or the VIX, flashed a signal that could mean the market bottomed during Tuesday's turbulent trading session, CNBC's Jim Cramer said.

Last week, the "Mad Money" host called on technician Mark Sebastian, who specializes in volatility, to get a read on the VIX, which measures expectations of near-term volatility by tracking option prices.

Volatility refers to the amount of uncertainty in the market's prediction of changes in a stock or index's value, and when the VIX goes higher, it tends to mean that investors are getting more worried about the market and making bets to protect themselves.

Sebastian said that stocks could see another bout of pain even after recovering from a widespread sell-off two weeks ago, adding that the VIX would likely peak before the selling was over.

In short, Sebastian said the market would see "a total hammering," in which "the averages would bottom if they made new lows and the VIX did not make a new high," Cramer said.

"Sure enough, that's exactly what happened today right before the market turned," the "Mad Money" host continued. "The bottom may be put in on the next swoon down if it isn't in already."

Cramer became even more convinced that this could be an end to the voracious selling that has rattled stocks for much of October by the slew of positive earnings reports from some of the market's most integral names.

"The averages hit their lowest levels in five months today. About three-quarters of the stocks in the S&P 500 are currently in bear market territory," he said. "American Express, Verizon, McDonald's, United Technologies, Johnson & Johnson, J.P. Morgan, Goldman Sachs, Procter & Gamble and UnitedHealth all reported sharply better-than-expected earnings."

Another "textbook sign" of a bottom came when the semiconductor stocks managed to rally in spite of a "brutal industry-wide downgrade," the "Mad Money" host noted.

This action signaled that the market may finally be moving past the "same negative drumbeat" that has made the major averages reel, Cramer said: the confluence of inflation, "anti-growth rhetoric" from the Federal Reserve and the Trump administration's tensions with China over trade.

"There's only so much we can go down on the same news," he quipped.

All that helped spin a "terrible day into a pretty decent one," the "Mad Money" host said. "I think the next decline will produce buyers at the levels we saw at the bottom today, not sellers, as we're now going into a seasonally positive period, with the end of mutual-fund selling and the conclusion of the haunted house of late October."

WATCH: Cramer unpacks Tuesday's market swings

The fear gauge and strong earnings tell Jim Cramer this bottom in the stock market may be real

Disclosure: Cramer's charitable trust owns shares of Johnson & Johnson, J.P. Morgan, Goldman Sachs and UnitedHealth Group.

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