Charts suggest stocks headed higher despite present risks, Jim Cramer says

CNBC’s Jim Cramer said Wednesday that he is seeing signs that the stock market could be ready to retreat from its highs, but a trusted volatility expert is suggesting otherwise.

“The charts, as interpreted by Mark Sebastian, suggest that the S&P 500 is headed higher … and the negative trends I pointed out at the top of the show — at least some of them — shouldn’t lead to anything too frightening,” the “Mad Money” host said.

Sebastian, the founder of OptionPit.com and Cramer’s colleague at RealMoney.com, came to the conclusion after plotting moves in the S&P 500 and the Cboe Volatility Index (VIX), also known as the market’s “fear gauge.”

The VIX on Tuesday jumped to just under 18 in intraday trading before pulling back to 16.44. Meanwhile, the S&P 500 dropped almost 1% midday Tuesday before clawing back most of its losses by the close. On Wednesday, the S&P 500 posted a fresh record, while the VIX lost some ground.

The VIX and the market usually run in opposite directions. When stocks climb, the fear gauge tends to fall. When the two indexes go in the same direction, however, it portends that a decline in stock prices is on the horizon.

“If you’re worried that the VIX is headed higher and therefore the market’s inevitably [headed lower], Sebastian says, ‘hold your horses,'” Cramer said. “Sebastian points out that the volatility index has been in a huge downtrend, making consistently lower lows and lower highs while the stock market’s roared.”

“Yesterday showed us that the VIX can give us a quick, violent move higher when the market sells off, so there’s some fear lurking, but that fear vanishes when stocks go up,” Cramer said. “For now, Sebastian says that’s what really matters.”