On Friday, CNBC’s Jim Cramer explained new technical analysis from veteran chartist Larry Williams that signals the market is heading for a bottom.
“I know it’s hard to believe anything positive right now, but I said the same thing in April 2020, and that’s when Larry Williams did one of the best background calls I’ve ever seen,” the “Mad Money” host said. referring to when the market soared after the onset of the Covid pandemic sent shockwaves through the global economy.
“He says that’s it. … I wouldn’t bet against him. I trust his predictions more than I despise this market, and I say that as someone who really hates the tape,” he said. -he adds.
Cramer began his explanation of Williams’ analysis by looking at the S&P 500 futures chart.
The futures line is in black and the rise/decline line, a cumulative indicator measuring how many stocks are rising daily versus how many are falling, is blue, Cramer said.
Williams views the advance/decline line as an indicator of internal market strength or weakness, according to Cramer.
“Right now you can see that even though the S&P spent the last week falling into oblivion, the lead/fall line has held up much better. In fact, it’s been steadily rising,” he said. .
He noted that this pattern – when an important indicator goes in the opposite direction of an index – is called a bullish divergence. “Williams says this action on the advance/decline line is incredibly positive for the market. It tells you that, from a magnitude perspective, the worst of this decline may be behind us,” Cramer said.
Next, Cramer inspected the daily S&P futures chart plotted with the overall volume index in purple. The chart reveals that trading volume has already started to “dry up on the sell side,” Cramer said.
He noted that the Global Volume Index is a cumulative indicator that measures volumetric flow by adding volume on up days and subtracting on down days.
“We care about this because volume is like a polygraph test for technicians: high volume moves tell the truth. Low volume moves [are] often misleading,” he said.
And because the balance sheet volume line has held up despite the S&P hitting new lows, the chart is consistent with what Williams would expect to see in “a bear market where some big money managers are finally coming off start buying stocks more aggressively,” Cramer mentioned.
He also showed a chart showing S&P 500 futures plotted with the Williams Insider Activity Indicator, in green.
“Look at the bottom of the chart – it’s the Williams Trader Commitments Index, which shows you what professional fund managers are doing with their futures positions,” Cramer said. “Even though the market is down, Williams sees the professionals buying here, and that often triggers significant rallies,” he added.
Finally, Williams observed the dominant cycles of the S&P 500, which typically last 75 days.
“Right now, this cycle indicates that the S&P is ready to run…and if the cycle holds, Williams would expect it to continue running from mid-June through the end of June,” Cramer said.