Mad Money: Game Plan: Expect a Rally - Game Plan

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Jun.13

7:22 PM ET

Game Plan: Expect a Rally

Cramer usually scoffs at technical analysis and its accompanying stocks charts. In fact, he likened the practice to astrology during this week’s Game Plan. He just can’t get with the idea that because some graph says a stock will drop, it will.

But admittedly there is one tool of technical analysis that hasn’t failed Cramer, he said, since 1987. The Standard & Poor’s Oscillator. It measures the amount of stock buying relative to selling in the market.

When the buying and selling are about the same, the oscillator reads zero. Multiple days of buying, though, push the oscillator up. It signals that stocks are out of equilibrium. Over the past three years, any time the oscillator hit +5 it’s been a sign that profits should be taken, because some kind of decline is inevitable.

The reverse is also true. Overselling sends the oscillator down. No matter what the market has looked like, Cramer has always bought stocks when the oscillator’s dropped to –5, he said, because that dip has been followed by a rebound.

Well, Friday morning the S&P Oscillator hit –6.

“There has been no time in the last three years – not once – that we didn’t have a huge rally after this oscillator has fallen to these levels,” Cramer said. “Very simply, I believe that means it’s time to buy.”

The banks are likely to rally, he said, specifically mentioning Wells Fargo [WFC Loading... () ] and JPMorgan Chase [JPM Loading... () ]. Lehman Brothers [LEH Loading... () ], though, should not be bought.