In a crazy market where one day is drastically different from the next, Jim Cramer has some real worries. The inconsistency has driven him to take a look at the charts and see what they have in store for the future. And while they are not always right, at least they are not emotional.
Cramer turned to the help of Carolyn Boroden, a technician who runs FibonacciQueen.com and is a colleague of Cramer's at RealMoney.com, to find out what could be in store for the and very important Dow Jones transportation index.
"Mad Money" last checked in with Boroden at the end of March, when she advised investors to be cautious of the S&P 500 with a ceiling level of 2,138. Since then, the S&P has rallied into a brick wall, right up to 2,134 on May 20. In short, she told investors almost exactly where the S&P 500 would peak.
Boroden based her target of the S&P by conducting a Fibonacci analysis. This is based on the observation made by Leonardo Fibonacci, the Italian mathematician from the Middle Ages who discovered that a key series of ratios tend to repeat themselves over and over again in nature. Many have used these ratios in predicting growth in plants, snail shells, pine cones and yes, the stock market.
Looking at the S&P 500's weekly chart, it hit that key high on May 20 at 2,134 and has since declined 2.5 percent. So where does she think it is headed?
Boroden believes that the S&P is still within a healthy long-term uptrend. However, according to her methodology, that May 20 date was very important. She said if the S&P can't rally back to that 2,134 level, the market is vulnerable to head much lower.
She also saw a floor of support for the S&P ranging from 2,075 to 2,079, which is just a few points below where the S&P traded on Tuesday. As long as the S&P holds above 2,067 then Boroden thinks we can bounce. But if that crucial level is taken out, she thinks we could be in for another leg down before the correction unfolds.
"In short, right now the S&P 500 is caught in no-man's land between 2,067 and 2,134. If we break above the high-end of the range, Boroden thinks we can breathe a sigh of relief. If we break down below the low-end, she thinks we'll need to get a lot more cautious," the "Mad Money" host said.
Boroden also took a look at the important Dow Jones transportation average, which Cramer considers to be a crucial indicator of economic health. If goods are going to be sold, then they will first need to be transported!
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Boroden saw that while transportation stocks have been hammered lately, the index could be running along a floor of support that will stop it from going lower. She saw that the Dow Transports hit a pivotal low in the last week of May and could have bottomed. But if those lows in May are taken out—then it is all downhill for transports, and they may take the market along with them.
Ultimately, Boroden interpreted that the charts suggest the market could be nearing some very important levels, both for the S&P 500 and the Dow transports. If either goes lower, then investors should get ready for more pain. But if they hold here, then the future could be a bright one.
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