Jim Cramer: What the VIX, or 'fear gauge,' says about the market's trajectory

If you want stocks to go higher, then a VIX spike is great news, "Mad Money" host Jim Cramer said. Subscribe to CNBC PRO for access to investor and analyst insights: https://cnb.cx/2Vtntx6

CNBC’s Jim Cramer advised investors Monday to stay the course after the stock market rebounded one session after suffering back-to-back weekly losses.

The S&P 500, facing pressure from inflation anxiety, declined 3% during the two-week stretch, but the “Mad Money” host took a cue from the volatility index — also known as the VIX or fear gauge — in an effort to plot which direction stocks may go next.

“Don’t let last week’s inflation scare freak you out,” he said. “The charts, according to Mark [Sebastian], suggest that the panic’s over and the market is beginning to roar.”

Cramer reviewed chart analysis by Sebastian, a technician who launched the trading education firm OptionPit.com and contributes to RealMoney.com, in the CBOE Volatility Index.

According to Sebastian’s research, Monday’s reversal reflects the aftermath of similar spikes observed in the VIX in June, November and January. In the weeks after those spikes, the VIX fell double digits and the S&P 500 rallied higher.

Had the VIX continued to rise alongside the S&P 500 Monday, caution would be warranted, Cramer added, because that’s usually a bearish sign.

“A VIX spike is what happens when the fear gauge makes a hard move up out of nowhere and then gives it away almost as fast. It represents a moment of panic that you’ve got to buy, because it quickly subsides,” Cramer said. “That’s why Sebastian’s confident that a VIX spike needs to be treated as a buying opportunity.”

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