Mad Money

Jim Cramer says playing Larry Williams' Fourth of July trade 'makes a lot of sense'

Key Points
  • CNBC's Jim Cramer broke down chart analysis from veteran stock trader Larry Williams to make a case for trading the S&P 500 ahead of the July 4 holiday.
  • "I think this Fourth of July trade from Larry Williams makes a lot of sense, as long as you're disciplined about it," the "Mad Money" host said.
  • "If you want a short-term trade with a terrific track record, Williams says you should buy the S&P two days before July 4," he said.
VIDEO1:4701:47
Jim Cramer breaks down Larry Williams' Fourth of July trade

CNBC's Jim Cramer on Tuesday made a case for retail investors to make a short-term bet and profit on the ongoing upside in the stock market.

The recommendation goes against the long-term investment strategy that Cramer preaches nightly on "Mad Money," however the show host sees an opportunity for new stock traders to be successful in the near term.

"Most of you shouldn't trade, you should only invest for the long-term, but if you're gonna trade anyway," he advised, "I think this Fourth of July trade from Larry Williams makes a lot of sense, as long as you're disciplined about it."

Taking a look at the S&P 500 E-mini, the electronic futures contract representing a portion of the S&P 500 futures contract Futures, Cramer pointed out that the S&P 500 tends to ride a seasonal rally from late June through early July. For traders looking to time the wave, he suggests trades are made with a clear entry point and a definite exit point.

Based on Williams' conclusions, Cramer said that buying the benchmark index in the handful of days leading into July 4 tend to yield positive results. Over the past two decades roughly, buying the S&P 500 two days out yielded returns 95% of the time; three days out 85%; four days out 80%; five days out 66%; and six days out 57%, he said.

"If you want a short-term trade with a terrific track record, Williams says you should buy the S&P two days before July 4," Cramer said. "Just remember to use a stop-loss order" as "Williams likes to let this run for two days and then sell into the first profitable opening."

Cramer made the case after perusing chart analysis from Williams, whose storied trading career spans more than five decades. In April, Williams foresaw that the U.S. economy would reopen in May and the market would bounce back in what Cramer then called one of the "boldest contrarian calls" amid the coronavirus pandemic.

From a financial perspective, "he absolutely nailed it," the host said Tuesday. "Now Williams has another idea, and it's a short-term fourth of July trade."

"We don't normally traffic in this stuff" because "I don't want people to think it's a trading show," Cramer said. "But trading is making a comeback and I've got to be sure that you're going to be rational and disciplined if you're going to do it."

VIDEO8:1008:10
Jim Cramer explains how to play the Fourth of July trade

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