It is very rare that the averages can sustain an endlessly bullish move, and Jim Cramer says rallies only end in two ways: with a big ugly decline or if stocks become exhausted.
"Let's stay vigilant. Take off some obvious gains, because no one ever got hurt taking a profit. But then let the rest ride, wagering that if the market really gets hit, the buyers who have been patiently waiting will finally decide to pull the trigger," the "Mad Money" host said.
The question on Cramer's mind is how will the hot streak come to an end?
Cramer frequently refers to the Standard & Poor's proprietary short-range oscillator to take the pulse of the market. Typically the short-range oscillator stays within five points of zero, which is neutral. When it goes over five, Cramer becomes nervous.
On Tuesday night, the oscillator hit 10. It indicated a level of danger to Cramer, that stocks are severely overbought.
"When it goes over 10, I get downright fearful because when the market looks so great, like it has lately, you tend to be the least prepared for a big decline," Cramer said.
However, no indicator is ever 100 percent correct. Cramer has seen extreme overbought readings before that have worked themselves off over a course of a few days. But by that same token, sometimes stocks can keep plunging.
That is why Cramer recommended investors remain disciplined and trim some positions, because otherwise it would be greedy.
"That doesn't mean this market's finished. Not at all. Remember Joe DiMaggio had a remarkable 56-game hitting streak, but when the all-star then failed to get a hit in the next game he was hardly washed up. That's how I think this scenario will play out, but consider yourself forewarned in case I'm wrong," Cramer said.
Cramer nailed down three scenarios that could trigger a sell-off:
1) The banks, as they begin reporting on Thursday. JPMorgan (NYSE: JPM) kicks off bank earnings and could possibly report a disappointing number.
2) FANG won't cooperate. Cramer's acronym for growth stocks Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google, now Alphabet (NASDAQ: GOOGL), has for the most part been crushed.
3) Fed head chatter. Members of the Fed will be speaking on Thursday, and Cramer's banking on someone saying the wrong thing and scaring investors.
"Remember, this market can muddle through here. We can work off the overbought position by having the stock market do nothing for a while," Cramer said.
So, while there will certainly be profit-takers, Cramer doesn't think there is enough new money coming in or fearful retail money left to really blast out the market and cause a decline. The key is to let positions ride, and be ready when investors pull the trigger.
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