Technical data

Charts suggest the S&P 500 may not be as strong in 2022


Investors may want to prepare for a tougher trading environment next year compared to 2021 gains, CNBC’s Jim Cramer said Tuesday, drawing on technical analysis from Carley Garner, co-founder of DeCarley Trading. .

“The charts, as interpreted by Carley Garner, suggest that the S&P 500 may have a little more potential thanks to this Santa Claus rally that normally takes place around this time of December,” said the host of ” Mad Money “. “But as we head into 2022, she thinks you have to be a lot less complacent because that kind of force just won’t last forever.”

The S&P 500 is up 23.8% year-to-date and nearly 108% since its pandemic-era closing low of 2,237.40 on March 23, 2020. Although it s This is an extraordinary rally for Wall Street, Cramer said Garner wants to stress that it has also been “extremely unusual.”

“As we get hit by a series of rate hikes next year, you’re going to have to brace yourself for uglier stocks,” Cramer said.

According to Cramer, one of the technical data that Garner is considering is the longer-term monthly chart of the S&P 500. After breaking through the trendline resistance cap about a year ago, Cramer said he is now very much above the trend.

Monthly chart of E-mini S&P 500 Futures (top) and Relative Strength Index (bottom)

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“Historically, these types of breakouts almost always see a retest of the previously broken trendline,” Cramer said. “In other words, she would expect the S&P to pull back near the trendline, which… would put it around 4,000. Folks, that’s down almost 14% from here.… If we get a close below 4000, she thinks that would set the stage for a much bigger correction. “

In Garner’s view, other worrying signs include the Relative Strength Index momentum indicator which is in overbought territory on a monthly chart basis, Cramer said. “When you look at the stock over the past 20 years, such a high reading can open the door to some nasty declines,” he said.

Cramer said Garner also sees a worrying story in the weekly E-mini S&P 500 futures chart when analyzed with data from the Commodity Futures Trading Commission’s Trader Commitment Report. This contains the holdings of small traders, large speculators and trading hedgers.

A weekly chart of E-mini S&P 500 futures (top) and data from the Commodity Futures Trading Commission Trader Commitment Report (bottom).

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It is currently showing that professional fund managers are net long futures on the S&P 500 to a degree not seen since October 2018, Cramer said. It was, of course, “just before a huge decline that only took its course on Christmas Eve of the same year.”

“We saw a similar level of optimism in early 2018, also just before a big correction,” Cramer said. “When a business gets too crowded you end up running out of buyers and the whole thing has a tendency to fall apart under its own weight.”

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