Charts suggest short-term market pain may be over, but don’t expect big rally, says Jim Cramer

Charts suggest short-term market pain may be over, but don’t expect big rally, says Jim Cramer

Charts suggest short-term market pain may be over, but don't expect big rally, says Jim Cramer

CNBC’s Jim Cramer said on Tuesday that the market will likely move sideways rather than experience a monster rally when it recovers, based on analysis from DeCarley Trading market strategist Carley Garner.

“The charts, as interpreted by Carley Garner, suggest that the short-term pain may be over soon, but you can’t expect us to return to turbo rally mode. Instead, she expects to a long period of sideways consolidation as we work from the foam created in 2020 and 2021,” the “Mad Money” host said.

He highlighted two important facts to remember when considering the current market:

  • We are currently in the middle of earnings season. Garner believes that “declining markets often find support in quarterly earnings, especially when seasonal trends are on your side, which they are supposed to be now,” according to Cramer.
  • Commodity prices have moderated and the bond market is showing signs of stability. Garner “isn’t predicting blue skies going forward, but she at least thinks this market is heading into a holding pattern where we could see some surprising strength,” Cramer said.

To support his interpretation of Garner’s chart analysis, Cramer first showed the daily chart for the CBOE Volatility Index, also known as the Fear Gauge, dating back to 2020.

“What the VIX directly measures is the urgency with which traders are buying put options on the S&P 500 to hedge their positions. …Because the VIX and the S&P 500 tend to move in opposite directions, you can expect a spike in the volatility index is good news for the stock market,” Cramer said.

He said Garner sees the VIX forming a head-and-shoulders formation, which is a reliable pattern showing signs of a potential spike.

“While the VIX is currently over 30, so long as it doesn’t break 35 and start again – completing the head and shoulders pattern – Garner sees it heading much lower, perhaps returning to the Again, that would be extremely bullish for the market because when the VIX goes down, the S&P almost always goes up,” Cramer said.

Cramer then looked at the Nasdaq 100 monthly chart. “This is… the worst start for these stocks since 2008,” he said.

The index has pulled back 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.

“Let’s put it this way: From the 2009 low to the 2020 high, the Nasdaq 100 has gained 7,000 points. … If the index had stayed true to its former uptrend, where would it be? 8,000 more points, not 13,000,” he said.

“While she doesn’t expect to see a sell-off of this magnitude, she can’t completely rule it out either,” he added.

A zoom in on the daily chart of the Nasdaq 100 shows the index breaking below a trend line back to lows in March 2021, Cramer said.

“Unfortunately it fell below that trendline just today. For Garner…we’re at a watershed moment now,” Cramer said. “If it stays stuck below that key support line…the next floor is 12,500. And if we get that kind of pullback, though, she thinks that would be an interesting opportunity,” he added. .

Finally, Cramer took a look at the S&P 500 daily chart.

“According to Garner, Monday’s daily price bar was a key textbook reversal pattern: the market opened sharply lower and eventually closed higher. reversal the other day will mean something or not,” Cramer said.

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