An analyst is forecasting the stock market will rally to new highs in due time and it's grabbing the attention of Jim Cramer.
The CNBC host on Thursday broke down chart analysis from Carley Garner, a market strategist and author of "Higher Probability Commodity Trading, who mapped out a case for the S&P 500 to break through its record high to 3,400 as the country recovers from the coronavirus downturn.
"When bearish money managers throw in the towel after realizing they can't fight the Fed or the tape, that's like rocket fuel for the averages, and days like today are interludes that let you get on the rocket," Cramer said on "Mad Money."
The market jumped almost 3% earlier this week on news that the Federal Reserve would act as a backstop and buy corporate bonds in efforts to help the economy recover from the coronavirus lockdown. The announcement came days after the S&P plummeted nearly 6% a week ago.
The benchmark index put in a floor of support that day near 3,000 and has since advanced about 4% from its June 11 close. The S&P, which rose slightly to 3,115.34 on Thursday, is now about 270 points away from its record close that preceded the big coronavirus-induced meltdown in February. Looking at the S&P 500 E-mini futures chart, Garner sees a scenario where the index can run some more, Cramer said.
"The charts suggest that new highs could be on the table. I think Garner makes a persuasive case, just don't get too comfortable," he said. "If the S&P 500 really does surge to 3,400, up 9.1% from these levels, maybe take something off the table," which means to sell some stock and protect the gains.
Garner's thesis, Cramer added, is bolstered by the Relative Strength, or RSI, momentum indicator that suggests the market is oversold. Should the S&P 500 continue to move higher, overly enthusiastic investors could in turn carry the market toward 3,500.
"Because the floor held, Garner's betting the bulls will be in control going forward," Cramer said. "As long as the S&P can stay above 3,000 line, she thinks that that opens the door for a retest of the all-time highs near 3,400."
Such a sequence would help the market recover the remaining losses from the fastest bull-to-bear market transition recorded in its history and give the index a gain of 5% from the beginning of the trading year.
"The next ceiling of resistance is around 3,250, if we can clear that hurdle, Garner believes it's smooth sailing to that high."