Cramer Charts Berkshire: Is Buffett a Smart Bet?
Fundamentally Cramer is a big fan of Warren Buffett. "I think he's brilliant," said the Mad Money host.
"No one does security analysis better than Buffett," Cramer added. His information is so thorough Buffett is sometimes called the Oracle of Omaha.
Turning attention to Buffett's company, Berkshire Hathaway, lately shares have been on a tear. Since the beginning of the year, the stock has rallied 19%, and is currently in striking distance of new all-time highs.
Even when fundamentals are fantastic, Cramer never advocates chasing gains. Considering the advance, at what levels should buyers who are interested in establishing a new position put money to work and pull the trigger?
For insights Cramer turned to technical analysis provided by Tim Collins a Cramer colleague at RealMoney.com.
Looking at the daily chart, Collins sees some bullish developments – especially if you're a nimble trader who can move in and out of positions with aplomb.
He notes that Berkshire Hathaway has been mostly trading sideways for the last month after spending the previous four months marching higher. The consolidation after a sharp move higher suggests to Collins the chart is making a so-called flag pattern.
According to Collins, If Berkshire can breakout above the top of the flag at $108, then HE thinks it could quickly jump up to the $112 to $113 range.
In addition Collins sees another bullish pattern, something called a cup and handle formation. A cup and handle is a U-shaped bottom that looks like a cup, followed by a period where the stock trades sideways, which makes the handle, and technicians often say it's one of the most reliably bullish patterns in the entire chart universe, because after the handle is finished, you often get a major move higher.
According to Collins, the cup and handle suggests the stock could go to $113 if it breaks out over $108. Therefore the cup and handle pattern would seem to confirm the flag pattern.
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However, if you're a long-term investor who likes to buy and hold for a year or more, current levels may not be your best entry point.
Looking at the weekly chart, Collins sees trouble. Patterns suggest to him that even if the stock can drive to $113, at that level it would need more time to consolidate, further.
Also Collins sees concerning patterns in the so-called Money Flow Index; it too suggests to Collins that the path of least resistance is lower.
Therefore, Collins thinks that Berkshire could push to $113, but then at that point gains will be followed by a consolidation pullback to around $103.
However as long as $103 holds, Collins believes Berkshire could go charging up to new and higher levels.
What's the bottom line?
If you're looking to put money to work in Berkshire Hathaway, Collins suggests choosing levels carefully. If you're a trader the stock looks like a buy on a breakout above $108; and if you're an investor a pullback to $103 could provide an attractive point of entry.
Jim Cramer concurs. "Berkshire owns insurance businesses some housing plays as well as a railroad," he said. Those are investment themes that Cramer expects to endure for the rest of 2013 and perhaps longer. "Therefore, if the pullback Collins cited comes to pass, at $103, I'd snap this one up," he said.
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