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Cramer: Reliable indicators that a stock is ready to explode

Technicals and fundamentals are Jim Cramer's key tools to determine when a stock is ready to explode.

"Typically, when a stock gets overbought it is ripe for a pullback because overbought stocks, ones with many buyers reaching to take in supply, tend to snap back after they have gotten too far away from their longer term trend line," the "Mad Money" host said.

Investors can determine if a stock is overbought or oversold by charting the ratio of higher closes, also known as the relative strength index, or RSI. This is a momentum oscillator that measures the direction that a stock is going, and the velocity of the move.

Cramer also matches the RSI of an individual stock to something else, maybe the relative strength of its sector or a larger index, and then measure the price action historically. He looks for anomalies where strength stands out, because that is a sign that there is a pending move or a change in momentum.

The inverse can also be true; a stock can also fall so fast that investors should expect it to snap back...


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