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Charts show the natural resource sectors can give the bull another leg to run on in 2020, Jim Cramer says

Key Points
  • "The charts ... suggest that the metals and mining stocks and the basic materials plays are headed higher, and even the energy cohort might be ready to turn soon," CNBC's Jim Cramer says.
  • "If that's the case, then 2020 could be a very good year for this bull market," the "Mad Money" host says.
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Charts show natural resources can give the bull another leg in 2020: Jim Cramer

The bull market can find another leg to run on in the new year if natural resource sectors can rebound, CNBC's Jim Cramer said Tuesday.

"The charts, as interpreted by Dan Fitzpatrick, suggest that the metals and mining stocks and the basic materials plays are headed higher, and even the energy cohort might be ready to turn soon," said the "Mad Money" host, citing a forecast from the technical analyst and founder of Stock Market Mentor.

"If that's the case, then 2020 could be a very good year for this bull market — even as ... I am not yet a believer" in the energy stocks.

The metals and mining, basic materials and energy stocks are among the most cyclical groups in the economy, Cramer noted. With the S&P 500 rallying about 25% this year, those industries could buoy the index over the next 12 months.

After peaking in January 2018, the S&P Metals and Mining ETF — the XME — fell almost 40% to bottom at $25.06 last December. The sector was under pressure from a slowing global economy and the Federal Reserve's fourth-quarter interest rate hike, Cramer noted.

Since then, Cramer said, Fitzpatrick examined what's called a flat triangle pattern in the XME's 200-day moving average, where the ETF set lower highs each time it rallied this year. That is until it broke past its moving average, a price action indicator, late last month.

The old ceiling of $27.69 this past September is now a floor, Cramer said.

"And within a few weeks, Fitzpatrick predicts that the shorter-term 50-day moving average will cross above the 200-day moving average," Cramer said. "This is what's known as a golden cross if we get it and that's the kind of incredibly bullish pattern that technicians just salivate for. [If] that happens, well then new uptrend will be confirmed."

The Materials Select Sector SPDR ETF, or XLB, has trended up this year but is lagging the S&P 500. Fitzpatrick, Cramer said, also found a flat triangle in the ETF and, in early November, it too broke through a ceiling of resistance of about $59. Trading under $60, Fitzgerald thinks there's more upside in the sector.

"So, we've got the metals and the basic materials — two of the core components of an economic expansion," Cramer said. "When these groups are strong, you know that manufacturing's doing better than expected and there's pricing power for finished goods."

The energy sector, however, has faced more troubled than the two other ETFS. Still, Fitzgerald is predicting the XLE, or the Energy Select Sector SPDR ETF, could break through its ceiling of resistance in coming weeks.

"It wouldn't surprise me if he's right" given signs that oil service stocks "may have finally bottomed," Cramer said. "Of course, a lot of people have been burned before, betting on a turn in energy … but then you'd have all three sectors going higher."

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Charts show natural resources can give the bull another leg in 2020: Jim Cramer

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