Cramer's 'Mad Money' Recap for Aug. 6

"And the biggest caveat of all: When you're shopping for stocks that have pulled back from their highs, make sure they haven't pulled back for a good reason."

Insider High

Cramer's second method to his madness is that if insiders are buying a stock when it's at its 52-week high, "that is a clear sign that you want in."

Cramer said he loves it when he sees insiders buying at the high, because "it's a great sign of their confidence in the business."

Sometimes insider buying is "meaningless" and, on its own, an "insufficient" reason to buy a stock. "A lot of times you'll catch insiders buying their stock because they want to give the impression of confidence, to create an illusion that they're doing better than they in fact are," Cramer said.

But then there are times when there is "truly colossal" insider buying. "It's a pretty powerful endorsement when the insiders buy a whole lot of stock," especially when the buying is occurring at the stock's high, he said.

"It's a pretty good reason to give someone the benefit of the doubt," Cramer said. "These guys are not going to buy at the high unless they have some unshakeable conviction about their companies."

Most investors are smart enough to wait for a pullback before they pull the trigger. Therefore, insider buying at the high tells Cramer that investors don't believe there will be a pullback, "and there's nothing more bullish than that," he said.