Mad Money

Cramer: Charts show S&P has a big change coming

Carolyn Boroden
Scott Mlyn | CNBC

Jim Cramer is a huge fan of measuring a stock based on its fundamental analysis. Meaning, understanding the earnings and valuations of a particular company before adding the stock to his portfolio.

However, the "Mad Money" host also thinks that valuable information can be garnered from technical analysis of charts. That is why for Chart Week this week, he turned to Carolyn Boroden for her interpretation of where the market is headed based on what is in the charts.

Boroden is a technician who runs and is one of Cramer's colleagues at Leonardo Bonacci, who went by the nickname of Fibonacci, was an Italian mathematician from the Middle Ages who found that a series of key ratios tend to repeat themselves over and over again in nature.

Boroden applied these key ratios based on past security swings in order to figure out if the could change its trajectory soon. To begin she emphasized the importance of Fibonacci price extensions, which are retracements beyond 100 percent. She uses those levels to determine where potential support and resistance levels are for the index.

"Basically what I have seen in the past is that many moves tend to terminate at extensions of prior swings," Boroden said.

For example, Boroden was able to call key highs and lows for the Russell 2000 index in 2014. She also used the same methodology to measure prior low to high swing on Tesla, and predicted the major low for Tesla back in March.

Based on this same technique, Boroden applied these ratios to the current market environment of the S&P. She found a timing cluster occur between July 7 and July 10, and the market traded down into that timing window.

However, Boroden was concerned with what she saw in the charts this time around because of a new pattern of lower lows and lower highs that appeared.

What does that mean?

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Boroden recommended watching the 2110 to 2115 level of the S&P for key market activity. With the S&P closing at 2107 on Wednesday, that means investors could get ready for a bumpy road very soon.

"If we can push through it, then the odds are higher for the extensions on the upside to be reached in the 2159 and 2190 area," Boroden said.

Ultimately, Boroden said she would not be surprised if the market cleared the upside levels, and took off into a glorious rally.

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