Legendary chartist Tom DeMark thinks key U.S. stock market indices could bottom in a few days, CNBC journalist Jim Cramer said Wednesday.
“Before we get there, we’re going to have to wait a little longer,” Cramer warned, reviewing DeMark and his team’s analysis of the S&P 500 and Invesco QQQ Trust, the popular exchange-traded fund that tracks the technology-focused Nasdaq-100. . Both the S&P 500 and the Nasdaq-100 posted strong gains on Wednesday, posting their first consecutive positive sessions since late February.
“What we’re looking at right now may be a premature buy,” the Mad Money host suggested. “When shorts run out,” Demark says, “it often creates a bottom vacuum — a big move down after the shorts have covered their positions and there are no more forced buys,” he added.
According to Cramer, Demark uses a 13-session countdown scheme that tells him when a rally or dip might change direction or, in other words, hit a top or bottom. DeMark’s methodology determines the bottom when the countdown hits 13, Cramer added.
Cramer said DeMark noticed patterns in the S&P 500 and ETFs that track the Nasdaq-100 that suggest both are days away from bottoming out.
Here’s a look at QQQ since September, including two trending 13s late last year.
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The Nasdaq-100 is on a 10 buy countdown, so it needs three more consecutive lower lows to potentially bottom.
Kramer now noted that DeMark believes the Nasdaq-100 is in the midst of a buy 10 countdown.
“That means we need three days of consecutive lower lows with lower closes before the downside is really exhausted,” Cramer said. “In other words, DeMark expects the last step to come down before the weakness in technology wears off.”
DeMark sees a similar pattern for the broad S&P 500. Here is DeMark’s analysis of the benchmark US stock index since September.
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The S&P 500 is also currently on a 10 countdown, meaning it needs three days of consecutive lower lows to possibly bottom.
The S&P is also at 10 in DeMark’s buying countdown, Cramer explained. “Again, this means we need three consecutive days of lower lows as well as lower closes before the selling runs out,” he said.
Putting the two pieces of analysis together, DeMark believes Wall Street’s selling “isn’t over yet,” Cramer said. “We see light at the end of the tunnel, but we are still in the tunnel.”
On Wednesday, Cramer broke up DeMark’s analysis a day after he looked at the charts of technical analyst Caroline Boroden, who predicted the S&P 500 would experience a temporary bounce soon.
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