Investing Club: This chart shows inflation may be peaking — here's what it means for stocks

Published Tue, Feb 15 20223:33 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

We're starting to gain more confidence in the stock market's near-term trajectory, and new analysis on inflation from longtime chartist Larry Williams is helping to bolster our view. Bottom line "I think now you've got a combination of the seasonal period of the [S & P 500] being strong — which, by the way does matter, because people look at charts — and the idea that inflation may be peaking," CNBC's Jim Cramer said Tuesday. "This is a double reason why this rally may have a little bit more staying power," he added, as all three major U.S. stock benchmarks were firmly higher on the session. The chart The Club discussed William's latest analysis during Tuesday's "Morning Meeting," and we're breaking it down again here. In the chart above, the blue line represents the percentage levels of the Labor Department's consumer price index since 1988. The orange line represents 5.5 year timing cycles for the CPI, as interpreted by Williams. Cycles can be used to identify when current trends may reverse. During the "Morning Meeting," here's what Cramer had to say: "This would indicate that you can't get worse than this. That could be Jay Powell's best friend here," Cramer said, referring to the Federal Reserve chair who is guiding the central bank through the highest inflationary period the U.S. economy has seen in four decades. "It is hard to imagine it getting worse," Cramer added. Cramer also discussed his views on inflation earlier on CNBC's morning TV programs, explaining that after Tuesday's hotter-than-expected produce price index he's starting to question how much worse the inflationary pressures can get. "It's just not sustainable. It's too high," Cramer said. He also lent his support to the Fed taking a more aggressive policy stance, suggesting it should also be selling assets, not just winding down its quantitative easing program. Cramer has relied on analysis from Williams for years, including during the Covid pandemic as the veteran technician issued a number of correct market calls. The big picture On Monday, we detailed a different piece of technical analysis from Williams that also plays into our more favorable view on stocks. That chart explained why Williams believes the Dow Jones Industrial Average may be in for a rally that lasts until late April. With Williams' bullish chart on our minds Monday, the Club put a little bit of the cash that we'd raised last week to work. We added modestly to our position in Danaher (DHR). Even though we think Williams may be right in calling for a stock rally, we are doubtful it would occur in a straight-up fashion given uncertainty remains around the Russia-Ukraine situation and the Fed's tightening regime. That's why the Club trimmed its position in Abbvie (ABBV) on Tuesday morning, taking a profit as the drug stock traded at a new record. (Jim Cramer's Charitable Trust is long DHR and ABBV. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Sept. 20, 2021.

Michael Nagle | Bloomberg | Getty Images

We're starting to gain more confidence in the stock market's near-term trajectory, and new analysis on inflation from longtime chartist Larry Williams is helping to bolster our view.