Cramer's 'Mad Money' Recap: Spotting Tops and Bottoms

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Switching gears from bottoms to tops, Cramer told viewers that even though people don't like to talk about tops on Wall Street, it is imperative to spot one to avoid "some serious pain."

"Sooner or later, every stock, every market, reaches a point where it can go no higher and in fact starts going a whole lot lower, maybe for years," he said. "It has happened historically without fail," and even if you don't want to, you must sell a stock when you see it's nearing a top.

One of the best ways to tell that a stock, especially one that's had a lot of momentum, is played out is when the bears start disappearing and analysts who cover the stock have upgraded, Cramer said. "That's a great sign in a momentum stock that you're about to run smack into a top ... because everyone who wants the stock owns it, and that means the buying will stop soon."

The second reason to abandon a stock is competition, he said. The only way you can tell that the competition is about to come in and destroy your company's business is by being watchful, Cramer said, and "the price of profits is eternal vigilance."

It's not enough to merely do homework on your stock, you need to monitor the whole sector, Cramer stressed. "I'd say a solid 70% of the tops I've seen were caused by competition."

Another time to sell "no matter what" is when you see accounting irregularities, he added. An options-backdating problem, however, is not an accounting problem, Cramer said; it's a compensation problem.

"Companies that backdate options for their officers don't do it because business is bad, like companies that lie about their financials -- they do it because business is good," he said. "Those executives would rather take stock than cash," and, if anything, that's a reason to buy the stock, not sell it.

Another way to see a top coming "a mile away" is when the company starts over-expanding. Even though Cramer said he likes growth, sometimes an acquisition is a sign of overexpansion. "It's hard to execute these things properly, and if a company can't pull it off, your stock will end up peaking rather than going higher," he explained.

"The code for overexpansion on the Street is integration problems," Cramer said. "When you hear management say those two not-so-magic words, you know a top is coming ... and it's time to run for the exits."