CNBC’s Jim Cramer said on Tuesday that the market is likely to move sideways rather than see a monster rally if it rallies, citing analysis from DeCarley Trading market strategist Carley Garner.
“Charts interpreted by Carley Garner suggest the near-term pain may be over soon, but don’t expect us to get back into turbocharged rally mode. Instead, they expect a long period of sideways consolidation as we work through the foam that has built up in 2020 and 2021,” said the Mad Money host.
He highlighted two important facts to remember when looking at the current market:
- We are currently in the middle of earnings season. Garner believes that “declining markets often find support from quarterly earnings, especially when seasonal trends are on your side, which they should be now,” Cramer said.
- Commodity prices have eased and the bond market is showing some signs of stability. Garner “isn’t forecasting blue skies from now on, but at least she thinks this market is heading into a hold where we could see some surprising strength,” Cramer said.
To support his interpretation of Garner’s chart analysis, Cramer first showed the daily chart of the CBOE volatility index, also known as the fear gauge, which dates back to 2020.
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“What the VIX directly measures is how urgently traders are buying put options on the S&P 500 to hedge their positions. … Since the VIX and the S&P 500 tend to move in opposite directions, you can assume that a peak in the volatility index is good news for the stock market,” Cramer said.
He said that Garner sees the VIX in a head and shoulders formation, which is a reliable pattern that is showing signs of a possible top.
“While the VIX is currently above 30, Garner sees that unless he breaks 35 and starts again – completing the head and shoulders pattern – he sees that it will go much lower, perhaps back into the tens. Again, that would be hugely bullish for the market because when the VIX falls, the S&P almost always rises,” Cramer said.
Cramer then checked the monthly Nasdaq 100 chart. “This is…the worst start for these stocks since 2008,” he said.
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The index has retreated significantly over the past five months, but the current correction is still small compared to the 20-month rally from March 2020, according to Cramer.
“Put it this way: from the bottom in 2009 to the top in 2020, the Nasdaq 100 rallied 7,000 points. … If the index had stuck to its old uptrend, where would it be? Garner points out that he would probably be close to 8,000 points higher, not 13,000,” he said.
“While she doesn’t expect a sell-off of this magnitude, she can’t completely rule it out either,” he added.
A zoom on the daily chart of the Nasdaq 100 shows the index has slipped below a trend line stretching back to the March 2021 lows, Cramer said.
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“Unfortunately, it just broke below that trendline today. For Garner…we’re in a pivotal moment now,” Cramer said. “If it gets stuck below that key support line… the next floor is 12,500. And if we get such a retreat, she thinks it would be an attractive opportunity,” he added.
Most recently, Cramer took a look at the daily chart of the S&P 500.
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“According to Garner, Monday’s daily price bar was a textbook key reversal pattern: the market opened significantly lower and eventually closed higher. … It’s a matter of coin whether or not this reversal pattern will mean anything the other day,” Cramer said.
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