CNBC's Jim Cramer on Tuesday took a look at chart action in the blue-chip index to gauge how stocks may trade leading up to the highly anticipated November election.
The "Mad Money" host considered analysis from Tom DeMark, a trusted technician renowned for his market-timing indicators and the financial analytics software company DeMark Analytics.
"The charts, as interpreted by the legendary Tom DeMark, suggest the Dow — and the rest of the market — could have one last move higher going into the end of the week, followed by a potentially ugly sell-off," Cramer said.
"That same method that tells DeMark we're cruising for a bruising also tells him that it might only last two or three weeks, with a possible bottom close to Election Day," he continued. "So, you're going to have to pull the trigger and do some buying."
Election Day, which is historically held on the first Tuesday after the first Monday of the month of November, is slated for Nov. 3.
Based on the daily return activity in the Dow industrials index, DeMark sees the 30-stock average advancing about 2.5% from current levels before it peaks and runs out of power for the short term. He predicts the Dow could climb to about 29,400 or as high as 29,550.
The same sequential pattern that DeMark followed to foretell the big September sell-off is flashing signs that it could repeat again. If the Dow runs through another 13-session sequential pattern, in which it closes above where it closed two days prior, it could trigger a downtrend, Cramer said, according to DeMark's prognosis.
The Dow fell for the first time in four trading days in Tuesday's session, giving up almost 158 points for a 0.55% dip to 28,679.81. The index is up 8% from its September lows, but remains about 420 points below where it closed prior to the sell-off last month.
"Assuming this pattern holds up, he thinks we've got one last leg higher … before this rally runs out of steam, possibly at the end of the week," Cramer said. "That's not what I want to hear, but it would make sense—we've had a monster run going into earnings season."
DeMark's technical analysis takes a proactive approach to timing the market, rather than a reactive one, Cramer explained. The respected technician with his method tracks critical price levels to find moments where a trend could change.
Investors are keeping a close eye on the temperature of Washington, including the odds that President Donald Trump or Joe Biden win the White House and what the partisan makeup of the Congress could be when votes are tallied, which experts have been warning could be delayed due to the high number of voters casting ballots via mail during the pandemic.
Investors are also watching to see if the Trump administration and current Congress can push through one more fiscal package to give much-needed financial assistance to businesses and individuals weathered by coronavirus restrictions.
"Assuming the Dow peaks in a few days and then we get that sharp decline," Cramer said, "DeMark says there should be just enough time for his indicators to turn positive and identify a bottom right before the election."