Cramer's 'Mad Money' Recap: Rally Recognition

Click here for an archive of Cramer's "Mad Money" recaps.

---

Every day the market goes down a little, people start praying for a rally, Jim Cramer told viewers of his "Mad Money" TV show Wednesday. And things have been pretty rough lately.

"You can still make money on a down day, but you cannot wait or hope for an intraday rally because it probably won't happen," Cramer said. It's not that they never occur, but they are very rare.

On this show, we believe in rigor, and we believe in numbers, Cramer said. Right now the numbers are telling us that we cannot rely on intraday rallies.

If you do rely on intraday rallies, you will lose money, he said. It's hard to reverse course when the percentages are against you and the odds are against intraday rallies, Cramer said.

However, Cramer reassured his viewers that he would not leave them hanging. "Intraday rallies do happen," he said. "They're rare, but that doesn't mean they don't exist. I'm going to tell you how to predict a real rally from an ugly market."

Three Rally Flags

First, look for an oversold market, he said. To figure out if we're oversold, identify an oscillator. An oscillator measures the pressure that buyers and sellers put on the market.

When the oscillator is low, that means the market is probably oversold -- that's when the sellers start to think they're selling too hard and walk away.

Second, you need very few bulls -- that's what you should look for, Cramer said. When you have a lot of bears, that means a lot of people have gotten out, he said.

Third, look for rallies that start later in the day, Cramer said. Intraday rallies that start earlier in the day will likely not last.

"Only the rallies that start around 2:45 p.m. tend to be successful," he said. "That way the sellers don't have time to put orders out before then and the bell."

Next, wait for the margin players to be cleared out, Cramer said. Right now margin debt is increasing, which is bad for the overall market.

Finally, wait for the shorts to cover.

"The bottom line: Intraday rallies are rare, but my tips could help you spot them," Cramer said. "A 2:45 p.m. rally could be money in the bag."