Mad Money

Serious catalyst looming on edges of market

Bond prices influence interest rates: Cramer

According to chart patterns, the market may be on the brink of something rather big.

That is, technical analysis as provided by Bob Lang of the TrifectaStocks newsletter suggests that bond rates are about to creep higher, specifically the 10-year U.S. Treasury. "That's a very big deal," said Jim Cramer.

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First the good news – an increase in bond rates could bode well for the financials. That's because a rate increase would affect the yield curve.

"The banks pay you very low interest rates for your deposits—pegged off of the shorter-term maturities—and they lend out money at much higher rates, pegged off of longer-term treasury yields," Cramer explained.

"So if the ten-year's yield is about to rise, that means the banks will be making money." In turn profitability should increase which could make the stocks of banks a buy.

Now the bad news – "if rates rise too much, or they climb too quickly, then that could cause the stock market to get slammed, at least temporarily as we adjust to a new, higher-interest-rate environment," Cramer said.

With the the S&P oscillator that Cramer follows showing that the market is the most overheated it's been in years, Cramer said on Monday that his charitable trust is scaling out from what he bought at the lows and not piling in.

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If you follow technical analysis closely, here's a further explanation of Lang's conclusions. Specifically, Lang is looking at patterns in the TNX, which tracks the moves in the yield in the ten-year Treasury index.

Lang has identified the following:
- Looking at the daily chart, the TNX has made an inverse head and shoulders formation—something technical analysts consider a reliably accurate technical pattern.
-The moving average convergence divergence line or MACD, an indicator that technicians use to detect changes in a security's trajectory before they happen, is flashing a bullish crossover
- In the weekly chart, the TNX made what's known as a golden cross; that's where the 50-day moving average crosses above the 200-day moving average, and for technicians it's a strong signal that a security is headed higher.

Although Jim Cramer is largely an investor who makes decisions based on fundamentals, he also believes that chart patterns provide valuable insights into a stock, sector or the market as a whole.

Call Cramer: 1-800-743-CNBC

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