While the market has become less volatile recently, Jim Cramer is ready for things to go awry at any moment. So while investor emotions are running high, he turned to the charts to get a read on where the and Nasdaq 100 could be headed.
Carolyn Boroden is a technician who has been involved with trading for over 25 years. She also runs the website FibonacciQueen.com and is a colleague of Cramer's at RealMoney.com. Boroden utilizes Fibonacci ratios to determine important swings in a given security to spot when a stock or index could change trajectory.
When Cramer last spoke with Boroden on Jan. 26, she indicated that while the S&P 500 was running higher, the rally would run out of steam and the averages could go lower. In particular, she said the sell-off was likely to resume during the first week of February.
The real low for the market occurred on Feb. 11, when the S&P finally bottomed. Boroden knew this was a crucial date because she saw a confluence of seven Fibonacci time cycles that came due from Feb. 5 to Feb. 19, which suggested that there was a big change coming—and that is exactly what happened.
Boroden now considers the intraday low of the S&P 500 at 1,810 on Feb. 11 to be a critical level.
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"Beyond that, even though the daily charts are still far from perfect, Boroden now thinks there is a strong case to be made that we could have a real, sustainable rally on our hands," the "Mad Money" host said.
In order to be bullish on this market, Boroden said there is one more major hurdle that needs to be cleared. Recent rallies in the market have lasted between eight to 11 trading days. As of last Friday, the S&P had been up for 10 trading days since that Feb. 11 bottom.
"If today's downturn continues, then perhaps we have already run out of steam," Cramer said. (Tweet This)
If the S&P 500 can head higher on Tuesday, that could indicate a run lasting 12 days, which is longer than any other recent move. Boroden thinks that could signal a more serious rally that could take stocks to new highs versus the peak back in May 2015.
However if the decline from Monday continues, investors could be stuck in the same ugly backdrop that has plagued the market for ages.
When Boroden looked at the charts for Nasdaq 100, she saw similar patterns. Her methodology revealed that an important low was coming between Feb. 11 and 14. Beyond that, Boroden predicted more upside for the Nasdaq, as it seems to be rebounding from an inverse head and shoulders bottom — one of the most reliable positive chart patterns.
So even if the S&P and Nasdaq pull back from their current ceiling of resistance, Boroden recommended for investors to look for weakness as a potential buying opportunity. But if the S&P 500 breaks down below 1,810, then all bets are off.