Chart patterns suggest laggard transforming into leader

(Click for video linked to a searchable transcript of this Mad Money segment)

With stocks at or near all-time highs pros will often look at laggards and then attempt to determine which laggard may be about to play a big game of catch-up.

Looking at Petrobras, Cramer sees a solid company with good fundamentals whose stock has declined 30% year to date.

"This is a good oil company that's finding crude all over the place, both on and offshore, and Brazil," he said. If the global recovery is gaining a foothold, Petrobras would appear to be oversold.

The thesis may seem sound on the surface, but is it also sound on other levels? To find out, Cramer likes to use technical analysis to see what chart patterns suggest.

For the following analysis on Petrobras, Cramer turned to Tim Collins, a colleague at RealMoney.com.

Les and Dave Jacobs | Cultura | Getty Images

Collins agrees with Cramer that PBR could be transforming from loser to leader. Here's why:

- Looking at the daily chart, after a significant decline it appears the stock is starting to bounce. According to Collins, Petrobras is forming a rounding bottom pattern, something that's considered quite bullish.

- Also he says the relative strength index and the stochastics have been moving higher over a period of weeks while the stock has gone lower. That too suggests to Collins that a turn is very likely at hand.

- In addition, Collins is watching the 10-day moving average, a very short-term measure of the stock's trajectory which Collins says confirms the advance. He says that as long as Petrobras stays above $12.80, it could go higher. Again, the pattern is bullish.

Taken separately, these patterns may not seem substantial, but Collins believes the fact that they're happening all at once is very meaningful - that it's a bullish confluence.

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Looking at key levels, Collins feels Petrobras should have an easy time making it to $14.50 and he thinks if it can break out above $14.50, the upside could be tremendous.

Jim Cramer thinks the strong fundamentals combined with bullish technical analysis are not to be ignored. "Also Brazil seems to be bottoming," he added. "All told, PBR is a 'buy' at least in my book," he said.

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