Has Cramer Gone to the Dark Side?

07/04/2013 6:00 am EST


Thomas Aspray

, Professional Trader & Analyst

Love him or hate him, Jim Cramer is always ready with his pithy market opinions, and here, MoneyShow’s Tom Aspray turns the tables by taking a technical look at some of his recent picks.

Last week, I accidentally switched to Cramer’s Mad Money TV show and was shocked to see him describing the bullish chart of the stock he was recommending. His is not a program that I generally watch and that is not a comment on Mr. Cramer as I rarely read or follow any other analysts.

I do remember that several years ago he was very disparaging of technical analysis, referring to it as “hocus pocus,” “voodoo,” and “mumbo jumbo.” As a diehard believer in technical analysis, this was the prevailing opinion when I started out in the 1980s.

Over the years, there have been many very good technical analysts who have lost their jobs with major brokerage firms when they expressed a bearish outlook on the stock market. For many years, the big firms only recommended buying, not selling.

I have no problem with those who prefer fundamental analysis if it works for them and regular readers know that I do look at some fundamental factors. However, I do find it ironic in light of some of the recent scandals where some of the financial data was created using smoke and mirrors.

I thought I would take a monthly technical look at some of Cramer’s buy recommendations from his June 28 show which were: Toyota Motor (TM), Joy Global (JOY), DuPont (DD), Boeing (BA), Ford Motor Co. (F), Starbucks (SBUX), Macy’s (M), US Airways Group (LCC), and Wyndham Worldwide (WYN).

I picked two stocks whose monthly charts looked positive to me and two that look more vulnerable.

Click to Enlarge

Chart Analysis: E. I. du Pont de Nemours and Company (DD) is a $48.48 billion chemical company that has a current yield of 3.40%. It made a high of $57.25 in May with a June low of $52.39. This was an 8.4% decline from the highs.

  • The chart shows the completion of a two-year flag formation, lines a and b.

  • The 38.2% Fibonacci support from the 2012 low is at $51.23.

  • The major breakout level from earlier in the year, line a, is now at $51.47.

  • The relative performance completed a bottom formation in May (line d) but is still below its long-term downtrend, line c.

  • The monthly OBV staged an upside breakout in February as it led prices by two months when it moved through resistance, line e.

  • The weekly OBV is above its WMA so the combined volume analysis is positive.

  • There is initial resistance now at $53.30-$54.

Toyota Motor Corp. (TM) has had a great run from last summer’s low at $72.04 as it hit a high of $130.99 in May. It corrected back to a low of $112.39 in June. I felt that this was the dip to buy the Japanese market as I recommended two Japan-focused ETFs, one of which has a 2.85% holding in TM.

  • The monthly chart shows a major breakout in February as resistance at line f, was overcome.

  • The relative performance completed its bottom formation at the end of November 2012, line h.

  • The long-term downtrend in the RS is still well above current levels, line g.

  • The monthly OBV formed a strong bottom in 2012 (see circle) and then broke its downtrend, line i.

  • The weekly OBV (not shown) is also positive

  • There is initial support now at $120-$121 and then at $115. 28.

NEXT PAGE: Two Not-So-Positive Charts


Click to Enlarge

Joy Global Inc. (JOY) is a $5.13 billion farm and construction machinery company, which is very sensitive to coal prices. It reached a high in 2011of $69.19 and a low in June at $48.12.

  • The monthly close was just below the monthly support at $48.90, line a.

  • There is next support at $42.50-$44 with the monthly starc- band at $34.71 for July.

  • The monthly relative performance broke its uptrend, line b, in February indicating that it was weaker than the S&P 500.

  • The OBV has also broken support that goes back to 2010, line c.

  • The monthly OBV is below its WMA and the weekly (not shown) made new lows last week.

  • The daily OBV and RS analysis both look weak.

  • There is initial resistance at $50 with the quarterly pivot resistance at $52.89.

Wyndham Worldwide Corp. (WYN) is a $7.74 billion hotel or lodging company that has a current yield of 2.00%.

  • WYN has been a very strong stock since the 2008 low of $2.55 as it hit the monthly starc+ band in April with the high at $65.30.

  • It dropped to $52.84 in June, which was a decline of over 19% from the highs.

  • The 20-month EMA is at $51.03 with the November low at $47.95.

  • The long-term uptrend in the relative performance, line e, has been broken as the RS line is below its WMA.

  • The weekly RS line (not shown) is in a clear downtrend and is trying to hold support from the November 2012 lows.

  • The monthly OBV is testing its WMA and a break of support at line f, would be more negative.

  • The weekly OBV (not shown) has turned up but is still below its WMA.

  • There is initial resistance at $58.46, which is the third quarterly pivot.

  • Much stronger resistance is at $59.75 to $61.56.

What it Means: The monthly analysis of E. I. du Pont de Nemours and Company (DD) looks the most attractive for new buying even though it is in the currently weak materials sector.

Since I think the Japanese market has much higher to go, and I expect the yen to get even weaker, Toyota Motor Corp. (TM) should be much higher. The entry in TM will require a more significant pullback.

Wyndham Worldwide Corp. (WYN) may eventually resume its major uptrend, but it looks negative now.

Joy Global Inc. (JOY) may be ready for a bounce, but it looks negative across all time frames.

How to Profit: For E. I. du Pont de Nemours and Company (DD), go long at $51.56 and 50% long at $50.32, with a stop at $48.84 (risk of approx. 3.9%).

For Toyota Motor Corp. (TM), go long at $120.96 and 50% long at $118.66, with a stop at $114.43 (risk of approx. 4.5%).

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