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Cramer: Bearish Pattern May Signal Trouble

Thursday, 4 Apr 2013 | 6:15 PM ET
Cramer: What Sellers of Apple are Doing Now
Thursday, 4 Apr 2013 | 6:15 PM ET
Mad Money host Jim Cramer breaks down fluctuations in the bond between Apple and the Nasdaq 100.

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It appears the market has reached a potentially serious point of inflection.

A few days ago the S&P set a new closing high at 1569 though it didn't pierce its all time intra-day high of 1576 set back in 2007.

The somewhat contradictory price action has generated all kinds of speculation about the market's next big move.

Bulls argue that stocks are consolidating before the next move higher. Bears insist that the market is overbought and that a pullback is imminent.

When the stock market reaches an inflection point like this, pros such as Jim Cramer often consult the technicals to see if they confirm or deny any given thesis.

To address this specific issue, Cramer consulted with Tim Collins a Cramer colleague at RealMoney.com.

And according to Collins, the technology sector could be a problem.

Looking at the daily chart of the QQQ, the ETF that tracks the Nasdaq-100, Collins sees negative developments.

He says the index is making a double dip pattern that Collins considers one of the most bearish in the book.

This is a pattern that's all about the stochastics, that's the momentum indicator that's used to determine if a security has gone too far too fast. This indicator is considered overbought whenever it's above 80.


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Currently Collins thinks the stochastics are nearing the danger zone, that is nearing 80. As bad as that sounds there's something else. This is the third time since December that it's hit this kind of excessive level.

In turn, the reading suggests a kind of triple top and in technical analysis a triple top is never good.

But that's not all.

Collins has identified what he believes to be something called a rising wedge formation – that is a pattern that suggests a big move is imminent - however this pattern could predict either a move lower or a move higher.

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Unfortunately, the move higher doesn't seem likely to Collins, simply because the stochastichs appear negative – that is, Collins thinks a break down is the more likely scenario.

And to make matters that much worse, Collins has spotted concerning patterns in the weekly chart. All told, Collins is bearish. He thinks the Nasdaq-100 could be at risk of taking a big haircut from here. Specifically, Collins thinks that a 3 to 5 percent pullback may lie ahead.

Although Jim Cramer prefers to invest based on fundamentals, he says these patterns are not to be ignored.

"Although I'm a fundamentalist and not a chart follower, I don't like it when the charts are against me. And in this case the charts appear to be against me. If nothing else, it's a good reason to be wary of tech."

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