Many investors agree that the economy could accelerate under a Donald Trump presidency. If that happens, Jim Cramer expects serious impact on interest rates, the dollar and inflation.
"We need to watch all three in order to make sure the Trump rally remains on track," the "Mad Money" host said.
To gain further insight on what the charts predict for the future, Cramer spoke with technician Rob Moreno, who is the publisher of RightViewTrading.com and is a colleague of Cramer's at Real Money. Moreno dug deeper by looking at three ETFs that are designed to track each category.
Long-term interest rates reflect the supply and demand for money. For a long time, long-term interest rates continued to go lower while Treasury bonds conversely went higher. Moreno noted that lately yields have been rising in expectation that the Federal Reserve will tighten and the Trump administration will kick the economy into high gear.
Moreno consulted the ProShares UltraShort 20 plus year Treasury ETF, known by the symbol TBT. This is a leveraged ETF that allows traders to bet against bond prices with double the firepower. The TBT has been on a rebound since July, which reflects the breakdown in bond prices.
"If Moreno is right, bonds still have a long way to fall, and therefore rates have a long way to rise, because he thinks this ultra-short long-term Treasury ETF is preparing for another leg higher," Cramer said.
Moreno then turned his attention to the U.S. dollar index, which measures the dollar against various foreign currencies. With the Fed about to raise interest rates, that means foreign investors will move money into the U.S. to take advantage of those rates, which could translate into the dollar hitting new highs. ETFs that also track the dollar indicated more signs of strength to Moreno.
The third pillar of new economic consensus is the return of inflation. To measure inflation, Moreno looked at the Reuters/Jeffries CRB index, which reflects the prices of a broad basket of commodities, ranging from metals, oil to agricultural products.
Looking at the monthly chart, Moreno saw that the last decade has been a period of deflation, and then bounced back, although in recent months it has been trading sideways in a narrow channel. What caught his attention was that the action outlined a cup and handle pattern, which is a reliable signal that the stock or index is about to make a move higher.
Ultimately, the fundamentals and charts indicated to Moreno that long-term interest rates are headed higher, the dollar will continue to rally and inflation will once again return.
"That is how you know the economy has got its growth groove back, and why you need to keep watching all three of these charts — perhaps the three most important charts in the book," Cramer said.