As markets hit all-time highs from burgeoning animal spirits rather than solid fundamental data, Jim Cramer finds solace in technical charts, which can help stock-pickers play the market in uncertain times.
"In a confusing time for the stock market, it's important for you to have some touchstones you can fall back on," the "Mad Money" host said, pointing to charts from technician Carolyn Boroden that look at Facebook, Apple and Tesla as some high-profile examples.
In times of volatility, Boroden, who also runs FibonacciQueen.com, uses moving average crossovers to help her determine the path of a given stock. Boroden focuses specifically on five- and 13-day exponential moving averages, or moving averages that give more weight to recent data.
If the five-day exponential moving average crosses over the 13-day, Boroden gets more bullish on the stock, which was exactly what happened in January with Facebook.
"You'll notice that on January 5th, right as this rally began to heat up, we got exactly the kind of crossover Boroden's talking about: Facebook's five-day exponential moving average, the blue line, went above its 13-day exponential moving average, the red line. Since then, the stock's been red-hot, running more than 20 points," Cramer said.
And, though Boroden notes that these averages aren't always accurate and shouldn't be looked at in a data vacuum, positive and negative crossovers are typically reliable signals for a stock's trajectory.
For example, Tesla's stock went south after Boroden's averages for Tesla turned negative. In early December, the five-day exponential moving average for Tesla crossed above the 13-day — a sign to buy, according to Cramer. Two months later, the five-day average slid below the 13-day.
"For Boroden, that's a classic sell signal, and if you'd followed it, you would've been able to get out of this stock when it was still in the $270s, roughly 20 bucks higher than where it is now," Cramer said.
As for Apple, after its five-day moving average crossed over the 13-day back in December — Boroden's buy signal — the stock has been on an upward tear that pushed it to multiyear highs.
Cramer's final thoughts landed on the fact that technical analysis isn't always perfect. Buy or sell signals can be fleeting, and investors may not be able to catch them as they pass by.
"But every now and this methodology will guide you to a sustained bull run like we've had in Facebook and Apple, or you'll sidestep a sell-off like the one Tesla was getting hammered by, at least until today," Cramer said.
And when there's not much clarity in the fundamental landscape, technicals can be key.