Multiday Sell-offs

Cramer dives into where market is headed

Tue 28 Jan 14 | 06:25 PM ET

The following transcript has not been checked for accuracy.
and associates. with the hideous multiday sell-off seems to be come to an end, for now. while your emotions may be useful when it comes to valentine's day which is along in a couple of weeks, that's my big thing on valentine's day, there's no place for them when it comes to an lietzing the market. that's why in times of a stretch, i think it's worth considering the charts. as i tell you in get rich carefully, you can't make investment decisions on technical you have to understand the fundamentals of the company whose stock you're buying. the technicals can be useful when it comes to timing. tonight we're going of tough charts with the help of carley garner who is the cofounder of carley trainer. in order to get a sense of where the dow and the nasdaq are headed because you want to know, because i have to tell you, it's a little worrisome when it comes to the s&p, garner thinks we have reached a moment where being too bullish is risky. where we have too many builts and not enough bears. that was last whence when the american association of investment survey came out, suggested that 30% expected the market to go lower over the next six months. this is a classic chase of complacency. that's the sign. that figures is much lower than the long term historical average of 30.5%. this gets at the crux of the main concern. there's still plenty of room for selling as the bulls ring the register and the bears get some short side going. how worried does garner think you should be? look at the long term monthly chart at the s&p 500. no secret the s&p has been in overbought territory, overbought means it may have come up too far, too fast. but the relative strength index or the rsi among other indicators to determine if the securities are overbought or oversold peaked at 78 late last year. and before that since the peak in 2000. now garner is not saying we will repeat the dotcom bust, but after the selling we have seen this month the rsi is still at $70. that's an elevated level and that worries her. anybody -- anything above 70 worries her. and we get a fierce correction, something worse than the decline we have experienced. you can see, okay, kind of makes sense. now, how low can the s&p go? check out the short term daily chart. throughout the second half of 2013, when the s&p would pull back and consistently found of -- found a floor of support and that held, and creating a bottom in three separate sell-offs. garner thinks we could be in for another trip to test the levels and the s&p moving average is 17.55. that's around 38 points or 2% below what we are right now. that could mark a floor for the s&p as investors have been trained to buy into any dip down. that keeps happening. any time you see the stocks stop, why did that than, it's because of this, people. but on the other hand if that floor doesn't hold, if we fall through the 100 day moving average garner says that would be a bearish signal for traders. things could get ugly real fast. don't see a lot of floor below that. that's the crucial level, down 2% level that the buyers will come in and if it doesn't hold we'll do a whole other kind of show. take a gander at the weekly chart of the s&p. another technical tool which is used to measure how overbought or oversold they might be. this is the 100 day moving average of 1755 again. if it breaks down below 1755 the downside is at the bottom of the weekly trading channel around 1670. that would be hard. that would be bad. if we do sink down to the efl wills that would be a 6.8% decline and all the bears out of the wood work have been using. a matrix of what they say when they come on the air, it will go to there. okay. all that said, garner does believe the s&p is due for a short term bounce. after all the pain we have taking of late. but if we do keep rallying from where here like we did today, she expects the s&p to hit a ceiling of resistance at 1828. so we're not going to coup that -- to go up past that level. i want to bring in an altering view. let's look at what carolyn broaden has to say. she's a terrific tech nick who runs the fibonacci.com website. i did huge research for the book. i'm looking at the work. okay? on the one hand, broaden is seeing signs that the recent pull back is over. this one is a nice looking floor, right, it seems l it's -- i don't know. rebar. add fibonacci times suggests a big reversal, which means the rally could be ready to resume. on the other hand, broaden says you have to be cautious because the s&p haallen below the 50 day moving average and it needs to run from 1808 to 1823. here's the hurdle. if the s&p can break through that 1823 level, broaden thinks it's smooth sailing, but it can't clear the hurdle then we could be vulnerable again to a much deeper correction. how about the dow jones industrial average? when we check out the dow's weekly chart, carley sees something happening in the s&p. they're falling precipitously from overbought level and that tells her that the dow could fall. and she thinks it could drop down to the bottom of the uptrend which is currently down at around 1500. so we're talking about a potential 8 -- 900 point decline from the levels. if we do manage to bounce from here, there's a strong ceiling of resistance at 1650. i have to tell you she's given us a nasty looking risk/reward. i don't want to present everything as being well here, turkey raises rates, you have people chatting about turkey as if it's something we don't just have for thanksgiving but every day. what about the nasdaq? when you look at the nasdaq composite, the recent run is pretty chilly. the nasdaq is only ever been this overbought based on the rsi, relative strength index, three other times since 1989. with each of the instances corresponding with a hideous decline. that's pretty obvious. while we talk about the nasdaq here's a brief off the chart aside. we know that apple was slammed after it reported last night, but our fibonacci queen broaden well, she has been waiting for the right buyer and she thinks we might have it. it's above a powerful floor of support. tim cook, i know that you could care less about this. but you know, i'm giving it to you anyway. as long as it holds that floor, well, broaden says we'll go higher. her fibonacci work size suggests it could change course and go higher. talk about a contrary view. i don't know a soul who feels this way except me and icahn. the charts and the major averages determined by carley garner is not on your side. you can bet technicians are ready to dump stock at a moment's notice on any even 1% increase. that's my view. i'm going to be right about this. can i go to dina in michigan? caller: hi, jim, booyah from michigan. i love your show! thank you. caller: i would like to know your take on pbr, with the emerging market issues going on -- we had a technician who did like it. it had a pop of about a buck, but it's brazil. brazil means sell sell sell. sell sell sell. i mean, i don't have a permanent -- there's just really worries about contagion from argentina. i want to be careful. the riyal acts real bad. how about jim in idaho, please. caller: hi, jim, thank you for alka tell and lucent and some of the other stocks. but i want to know about ak steel. is it on a roll? kind of like alcoa? thank you. you know, ak steel got it together. i thought they'd get it together a couple of years ago and they didn't. i'm one foot out the door on ak. this feels different. the one -- my charitable trust is suffering through timken. it reminds me of the steamer trunk that's hideously on top of my head when i open a stock or my trust opens a stock that's not working. you can't make investment decisions base technicals but they can't big norred either. garner says if we get any more bounce, the seller will come out of the wood work. let's stay a little cautious and
URL:http://video.cnbc.com/gallery/?video=3000240484

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