May 20, 2022

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The charts indicate that the market pain in the near term may be over

The charts indicate that the market pain in the near term may be over

CNBC’s Jim Cramer said Tuesday that the market is likely to move sideways rather than face a brutal rally when it recovers, based on analysis from Carly Garner, market strategist at DeCarley Trading.

“The graphs, as interpreted by Carly Garner, indicate that the near-term pain may soon be over, but you can’t expect us to go back to turbocharged high mode. Instead, expect a long period of lateral consolidation as we work to remove the froth that’s been done. Created in 2020 and 2021,mad money‘ said the host.

Highlight two important facts to remember when thinking about 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 you are supposed to be now,” according to Kramer.
  • Commodity prices fell and the bond market showed some signs of stability. Cramer said Garner “is not expecting blue skies from now on, but she does at least believe that this market is heading into a contract pattern where we can see some surprising strength.”

To back up his interpretation of Garner’s chart analysis, Cramer first showed the daily chart of the CBOE Volatility Index, also known as the Fear Scale, going back to 2020.

“What the VIX measures directly is how quickly traders buy 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 expect a peak in the volatility index which is good news for the stock market. “.

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He said Garner sees VIX making a head and shoulders formation, a reliable pattern that is showing signs of a potential peak.

“While the VIX is currently over 30, as long as it doesn’t break 35 and start over — continuing the head and shoulders pattern — Garner sees it heading down a lot, possibly pulling back into the teens. Once again, that would be very bullish for the market, because When the VIX goes down, the S&P almost always goes up.”

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

The index has fallen significantly over the past five months, but the current correction is still small compared to the 20-month high from March 2020, according to Kramer.

“Let’s put it this way: From the low in 2009 to the peak in 2020, the Nasdaq 100 is up 7,000 points. … If the index had stuck to the old uptrend, where would it be? Garner points out that it probably would. Soon 8000 points higher, not 13,000.”

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

Cramer said zooming in on the Nasdaq 100 daily chart shows that the index has pulled back below the trend line back to its March 2021 lows.

“According to Garner, Monday’s daily price bar was a basic pattern for a major reversal: the market opened sharply lower and eventually closed higher. … It’s a token whether or not this reversal pattern the other day will mean something,” Kramer said.

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