Cramer: Troubled charts mean stormy seas ahead?

Life ring tossed out in rough seas
John Lund | Getty Images

With the market tumbling on Tuesday and then rebounding on Wednesday, many investors feel they are sailing rough seas. Jim Cramer is helping to steady the wheel by asking for chart advice from experts.

To navigate, Cramer turned to Ed Ponsi, chartered market technician and managing director of Barchetta Capital Management. Ponsi has taken a close look at the charts and believes that investors may yet be facing choppy seas ahead.

To explain the issue at hand, let's go back to that dreaded death cross pattern that formed in the charts of the Russell 2000. The death cross—traditionally regarded by chartists as the most bearish pattern, in which the short-term 50 day moving average crosses below the 200-day moving average—showed up the first week of October.

So why is this coming up again?

Even though the Russell 2000 did rebound in Wednesday's rally, Ponsi believes that what happened to the Russell 2000 on Tuesday was worse than the death cross. The index closed on Tuesday below 1082, a level that has generally been regarded as a basement for the index, a point when buyers historically stepped in.

Now, Ponsi is concerned that the Russell 2000 will fall through the floor as a result. Additionally, many stocks that have previously shown strength are now breaking down.

One stock in particular is the agricultural giant Monsanto,which formed its own death cross pattern last week. And while Cramer believes that the death cross is not always an ominous signal, the fact that it is also breaking down from a nasty head-and-shoulder pattern could be.


"Typically, in a head-and-shoulders situation, a stock will get crushed after the right shoulder is finished forming, and that's exactly what's happening to Monsanto lately," the "Mad Money" host said. It's in line with the weak outlook provided by the firm Wednesday.

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While there are various signs in the market that are causing both Ponsi and investors to sweat, Ponsi thinks sellers are being aggressive across the spectrum. He thinks this market may be in for more of a bumpy ride and will need to go lower before it goes higher.

"While I think it's a mistake to get too negative, we do need to get comfortable with the idea that the averages could still have further to fall here, and some of the market's former leaders may truly be stumbling and giving back their hard-fought gains," Cramer said.

Batten down the hatches.

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