Cramer's Checklist To Identify A 'Sustainable' Stock Rally

Stock market rallies can be deceiving, CNBC's Jim Cramer said during his daily "Mad Money" show on Wednesday: "Bad rallies" exist, and they're characterized by stock market gains, but for the wrong reasons.

There are three items on a checklist that differentiate "good" rallies and "bad" rallies, Cramer said.

First, when financial stocks rally, it more often than not indicates that the broader economy is healthy and more capital is being lent from banks to individuals and businesses — which in turn implies small businesses are confident enough in their own prospects.

Experience shows that there has never been a "bad" rally that has been "led by the banks," Cramer said

"If anything, strength in the financials is a precursor to better things, wider breadth, meaning more stocks go up and a lot more companies that will do better next year over this year."

Second, technology stocks need to take part in the rally as well, Cramer said. Of particular importance is a strong performance from technology companies that are tied to data centers, mobile phones and self-driving cars — and not just the "FANG" group.

Finally, and perhaps to a lesser extent, the transportation sector needs to show strength for a rally to be considered to be a sustainable one, Cramer said. 

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