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Cramer's charts show one industrial manufacturing stock heating up for a rally

  • Jim Cramer uses technician Tim Collins' charts to track the progress of Emerson Electric's stock.
  • Emerson Electric is an industrial manufacturing conglomerate that could be poised for a breakout, Cramer says.
  • As its stands, the stock's odds seem to be in the bulls' favor, Collins finds.

In light of a several-day pullback in the high-growth technology names, Jim Cramer took to the charts to track one "smokestack stock" he said may be poised for a breakout: Emerson Electric.

To find out if shares of the manufacturing giant could surge higher, the "Mad Money" host turned to the charts of technician Tim Collins, Cramer's colleague at RealMoney.com whose call on Qualcomm proved to be right, as the stock later saw a 6 percent trading gain.

"Collins says that this stock may be flashing more than a few sparks right here," Cramer said, turning to Emerson's daily chart.

Cramer pointed out that after a big rally in January, the stock has been trading in a fairly tight range over the last four months, between $57 and $61.

But lately, the stock has been testing its $61 ceiling of resistance, currently trading at $60.84, only a few cents away from pushing above that level.

"According to Collins, if the stock can get back above $61 and stay there for a few days, the breakout will become real, and this current ceiling of resistance will turn into Emerson's new floor, a floor of support," the "Mad Money" host said.

Collins, however, has a few more reasons to be bullish. The Bollinger Bands, or technical brackets that measure a stock's volatility, have also been hinting at a breakout.

The technician notices the upper Bollinger Band pushing higher, mirroring Emerson's January rally. The same thing happened in April, but the stock failed to break out, which created the current ceiling of resistance.

"So why does Collins think that this time could be different [and] it can puncture that? When Emerson rallied in April, it did so on low volume," Cramer said. "Remember, for chartists, volume is like a polygraph — high volume means a move is telling the truth, low volume means it might be deceiving you. Well, lately, the stock has been advancing on very strong volume ... and that suggests to Collins that this run is the real deal."

Collins also noted that the full stochastic oscillator, a technical indicator that measures whether a given stock is overbought or oversold represented by the bottom row of the daily chart, showed that Emerson shares were overbought in April, meaning it had run too far too quickly.

"Now, though, it's not overbought at all," Cramer said. "Put it all together, and Collins believes that Emerson could be ready for a quick move up to $63."

Collins is bullish on the stock's long-term prospects, too. For one, Emerson's weekly chart shows a steady rise, which makes its recent sideways trading look like a consolidation that is part of a larger, 18-month climb.

All in all, Collins expects the industrial manufacturer's stock to continue its upward trend, possibly reaching $70 a share in the next six to eight months. If not, he thinks the stock will maintain its $57 floor of support, only a few dollars below where it is currently trading.

However, if the stock takes a hit and slides below $55 a share, Collins says the bulls will likely pull their positions and all bets will be off.

"Here's the bottom line: if you believe in this worldwide economic growth story that I've been talking about and you're looking for an industrial with some upside here that really hasn't moved that much, the charts, as interpreted by Tim Collins, suggest that Emerson Electric has more room to run," Cramer said. "My view? Hey, look, you could do a lot worse than Emerson, and management's paying you this nice 3.15 percent yield just to wait for something good to happen."

Watch the full segment here:

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