The market did not fall on Tuesday simply because Alcoa reported a disappointing quarter and the price of oil went down. Jim Cramer thinks a larger force could be taking down some of the largest companies in the stock market.
"When you see investors turning on the market's former leaders, that tends to spread doom and gloom and pessimism," the "Mad Money" host said.
To gain more insight from the charts, Cramer spoke with technician Rob Moreno, who is a colleague of Cramer's at RealMoney.com and the publisher of RightViewTrading.com.
According to Moreno, many high-profile market leaders have fallen out of favor in a wide variety of sectors. Once-loved stocks like General Electric, Under Armour, Disney and Starbucks have all underperformed this year, and Moreno fears that the continued weakness could weigh on the entire market.
Since peaking nearly a year ago, Disney has lagged the by roughly 31 percent. The stock began to plummet when investors worried about the slowdown in growth of ESPN. When Moreno looked at the technical indicators, he found that the selling pressure on the stock indicated big institutional money managers bailing on it.
The floor of support Moreno suggested was around $90. If it falls below that floor, he expects it to get hit with another wave of selling pressure.
"Whatever you think of Disney's fundamentals, and I think they are terrific, the chart is clearly not friendly to the bulls," Cramer said.
Moreno found a similar pattern with the stock of Starbucks. It peaked at the end of last year, and then fell below its 40-week moving average. More important, Moreno noted that Starbucks has been making a triangle topping pattern.
This is when a triangle is created from a downward sloping ceiling of resistance, and a flat floor of support. The height of the triangle tells investors just how far the stock could fall if it breaks down the floor of support.
Moreno wouldn't be shocked if the stock dropped to the mid-to-low $40s if it fell below $53 on a weekly basis.
Typically, General Electric is correlated with the broader averages, but in 2016 that pattern did not hold up. For the first half of the year the stock did pretty well, but then broke down in September. Moreno fears that the stock could be in danger of giving up its entire rally.
"We own this one for the charitable trust, too, and we would love to buy more at these levels, but you need to be aware that Moreno is not a fan," Cramer said. "GE's got a lot of aerospace, which is today's big freak out, so I understand the weakness, but I still believe that $25 would be a huge and unlikely bargain."
So, when investors start to turn against the market darlings, Cramer takes it as a sign that maybe the gloom in the market on Tuesday didn't have to do with Alcoa and oil. It could have been a spillover, prompted by heavy hitters like Starbucks, General Electric and Disney.
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