As the market approaches the end of the year, Jim Cramer broke down stocks into the naughty list, and those that could keep playing nice into 2017.
"Not every red-hot stock will continue roaring higher, and I think it is important to use every tool at your disposal to figure out which winners will be able to sustain their momentum and which ones might be in jeopardy," the "Mad Money" host said.
To gain further insight on the charts, Cramer spoke with Tim Collins, a technician and colleague at RealMoney.com to compare the high flying stocks of Broadcom Limited and Teck Resources.
Broadcom is the semiconductor giant formerly known as Avago. The combined company is a large marker of chips for communications, enterprise storage and internet of things and the stock has been on fire lately.
Even more stunning to Collins was Broadcom's weekly chart, which indicated bullish activity in the future. For the past six months, Broadcom has been consolidating previous gains and trading sideways. Last week, Broadcom finally broke out from its ceiling of resistance, and the stock continued to move higher this week. Collins thinks it could have a lot more upside, too.
If everything goes well, Collins anticipated that Broadcom could rally above $200 by February. If the stock fails to break out, he thinks it could resume trading in the old range with a floor of support around $167.
The stock that hit Collins' naughty list was Teck Resources. Charts suggested that the stock's recent weakness could be about more than just end of the year profit taking — the issue was support.
Last week Teck Resources broke down below the floor of support that had been propping the stock up since April. To make matters worse, the stock began trading below its 13-week moving average for the first time since its 2016 breakout began.
Collins was even more worried about secondary indicators, like the Moving Average Convergence Divergence (MACD) line. The indicator has come down dramatically.
While Teck Resources does have another floor of support at $18.50, Collins doesn't believe the floor will hold and expects the stock to pull back to $16 next year. Otherwise, if the stock rebounds back above $23, he thinks it could retest highs at $26. However, he expects the stock to move lower, not higher.
"Teck Resources may be about to join the naughty list and get a lump of coal in its stocking, which would be doubly insulting for this metallurgical coal producer," Cramer said.
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