Cramer: Blame the Charts for Monday’s Losses

The Dow on Monday dropped 187 points, with the Nasdaq plummeting 42 points and the S&P 500 slipping 22. Pundits reached for any cause they could find: oil has stalled out, copper is down, credit-card risk has hurt the banks, and President Obama will make the health care system even worse, charging us big bucks in the process. But were these the real reasons behind such a terrible day in the markets?

Nope, it was the charts.

That’s Cramer’s take anyway. He pointed to the S&P 500’s chart, specifically the index’s sharp move up and away from its 30-week and 10-week moving averages. A lot of the individual stock charts showed the same trend as well, and the gap was just too big, he said. As a result, today we got a technical correction.

Here’s the bad news: We won’t reverse course and continue higher until the S&P and stocks as a whole are back about even with their 30-week and 10-week moving averages. Now the good news: Cramer expects that to happen on Tuesday, if we continue at this downward pace. At that point, the fundamentals that have been driving this bear market, which started in early March, should reassert themselves.

Cramer also took the chance to debunk some of the chatter heard on Wall Street today, namely that the world’s policy makers won’t do more to stimulate their respective economies if businesses and stock markets start to pull back. The “common wisdom” says that Federal Reserve Chairman Ben Bernanke, Treasury Secretary Tim Geithner and their overseas peers won’t be compelled to further action because things seem to be getting quickly better.

Here’s some more myth debunking from Cramer: Falling oil prices are bad. Wrong – bad is the price of gas at $3 or more. That would truly stunt consumers and, in turn, a recovery. The dollar is gaining strength. That probably won’t be a long-lasting trend with the US budget deficit as it is. President Obama’s health-care plans will hurt the economy, especially the health-care sector. UnitedHealth , Eli Lilly and a lot of the other companies in the group are already hurting. This isn’t new, Cramer said.

To bring it back to the charts, consider this key component of technical analysis: Trading volume is everything. Heavy volume means a move is real, light means it is not. Today we got the latter. So keep that in mind before you accept the pundits’, well, fear-fueled freak-outs as fact.

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