Cramer: A Colossal Market Hiccup Is Coming

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NEW YORK (RealMoney) -- You can see what's happening in this rally. This is one of those upswings we have seen periodically in 2011. It is a vicious swing, some would say bear swing, where every single short seller has to be taken out and shot before the market can come down dramatically.

Here's how it will play out.

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We could have several days of major movements up. Everyone who is not in will look like an idiot. Everyone who is short will give back what's left of their year.

Then, when every short is cleaned out, when there are no shorts left, we will get a colossal hiccup from an overbought position that will take supposedly everyone by surprise and the hammering will be vicious.

This is ordained. It is what is going to happen. No one can really do anything about it. The rallies are so severe because of the double and triple ETFs and the shorts so huge, encompassing everything from the SPDR Financial (XLF) and the Retail HOLDRs ETF (RTH) to Green Mountain Coffee Roasters (GMCR) and Netflix (NFLX), that the last part of the ride could be parabolic.

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When we get there, everyone will recognize that at that point it is total performance chasing. But it will be too late and the fall will be steep because no one will be there to break the fall.

That's the selloff that puts Caterpillar (CAT) down ten and Bank of America (BAC) back to $5 from the $7 it probably gets to. It knocks Intuitive Surgical (ISRG) and Priceline (PCLN) back and cleans out the longs in Google (GOOG) and Apple (AAPL).

But we have to get there first and we are not there.

What are the signs that this is happening? OK, here is a classic one. The S&P saber rattles about everything that we most feared, especially France's sainted AAA rating. The shorts go nuts both after the close and early this morning placing bets and then it doesn't work. Europe doesn't plummet. That means that the U.S. doesn't go down.

The pain can't be taken, so the shorts cover. They tend to cover at the opening because they are so undisciplined and then they try again and then again get their heads handed to them.

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