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How Charts Can Be Misleading

It is hard to know what to do when you like a company but its chart looks “terrible,” Cramer said Tuesday.

The Mad Money host wrestled with this very issue when contemplating Southwestern Energy , a natural-gas company based in Houston, Texas. Cramer thought the company looked good until Tim Collins, a top Wall Street technical analyst, showed him its "ugly weekly chart.

In early April, the stock suffered a “bearish crossover,” meaning that its longer-term 34-week moving average went above the shorter-term 14-week moving average. Basically, the stock's trajectory is getting more negative. Collins found that the last time the company experienced a bearish crossover, its stock was stuck in a slump for half a year.

Apart from bearish crossover, Collins also found another negative for SWN: Its 34-week moving average, while once a support, or floor, in the stock that provided a great buying opportunity, has since become a ceiling. Now the stock seems unable to break through that resistance level.

While the technicals are discouraging, Southwestern has been one of the best-performing companies in oil and gas exploration and production over the long-term. In the last three years, Southwestern is up 70% while the S&P 500 is down 26%. In the past five years, Southwestern has climbed 362%, as the S&P dropped by 5%.

Cramer had a feeling the issue with the charts were irrelevant for long-term investors and spoke with CEO Steve Mueller for his thoughts. Watch the video for the full interview.

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  • Jim Cramer

    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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