The semiconductor stocks have been trading wildly of late, getting hit in July 2017 and again during last week's sell-off before bouncing back on Monday.
These dramatic moves made Jim Cramer wonder which move was really telling the truth about where the group is headed: down with the pullback or up with the rally?
That's why the "Mad Money" host teamed up with technician Carolyn Boroden, the brain behind FibonacciQueen.com and one of his colleagues at RealMoney.com, to go off the charts of three key chipmakers' stocks: Nvidia, Micron and Applied Materials.
Cramer started with Nvidia's daily chart. One of the top stocks in the S&P 500 Index for the second year in a row, his dog's namesake gave buyers a momentary chance to get into the stock last week before running back up to $166 and change as of Tuesday.
While investors who don't already own shares of Nvidia might be late to the party, Boroden believes the stock still deserves their attention.
"The stock occasionally gives you a pullback like last week ... and when that happens, it tends to really roll over as weak-handed bulls, who owned it only because it was going higher, decide to abandon ship," Cramer said.
Boroden noted that Nvidia's decline last week was similar to its past declines over the course of its rally. She also found two strong floors of support, from $151 to $152 and from $144 to $148.
After Nvidia grazed the first floor of support last week, dipping below $153, the stock bounced back hard, and Boroden believes it can continue to do the same going forward.
"Given that August and September are brutal months where we often get short, sharp pullbacks ... you'll want to watch this $152 level in case Nvidia gives you another buying opportunity," Cramer suggested.
Based on Nvidia's stock pattern to date, Boroden thinks the next pullback could come in mid-September. That said, she still gives the stock three upside targets: from $176 to $180, then from $187 to $188, and if the stock pushes past both, then she expects it to hit a ceiling at $209.
"So, if you already own it, like my charitable trust does, Boroden thinks you could have smooth sailing until next month, and if you don't own it, then maybe think about waiting for that next sell-off in September, if it holds these levels, to pull the trigger," the "Mad Money" host said.
Micron's stock is more boom-and-bust than Nvidia's. Shares of the commodity chipmaker peaked in June and have drifted lower since before bouncing back on Monday.
With the stock up over $29 as of Tuesday's closing bell, Boroden wouldn't be shocked to see it climb to $34 or even $36. But if Micron breaks below its $25 floor of support, Boroden said that would start the "bust" part of its cycle.
"Once Micron and its competitors start really boosting their production, pricing will eventually fall apart. The earnings estimates will get slashed," Cramer said. "Of course, that's been hanging over Micron's head for ages. [It] hasn't stopped the stock from rallying hard over the past 18 months, but it has most recently. Just remember that the run in Micron has a limited shelf-life."
Applied Materials' situation is similar, Boroden said: If the stock can hold above its floor of support in the low $40s, it could rally to the high $40s or even the low $50s.
But just like the others, if Applied Materials dips below $41 or its second floor of support just above $40, then Boroden suggests investors ditch the semiconductor equipment stock.
"The charts ... show you how to approach the likes of Nvidia, Micron and Applied Materials when they get hit," Cramer said. "And given that we're in a historically rough time of year, I bet they'll get hit again in the not-too-distant future. When that happens, I'm very on board with Nvidia. I like Applied Materials. Micron? At this point, it is too boom and bust for me, and I do believe the easy money has been made and then some."
Disclosure: Cramer's charitable trust owns shares in Nvidia.
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