Legendary chartist Tom DeMark thinks key U.S. stock market indexes could be days away from reaching a bottom, CNBC’s Jim Cramer said Wednesday.
“We’ll be in some more pain before we get there,” Cramer cautioned, as he broke down analysis from DeMark and his team focused on the S&P 500 and Invesco QQQ Trust, a popular ETF that tracks the tech-focused Nasdaq-100. Both the S&P 500 and Nasdaq-100 saw strong gains Wednesday, posting their first back-to-back positive sessions since late February.
“What we’re looking at right now could be premature buying,” the “Mad Money” host suggested. “When the shorts have finished, DeMark says that often creates a downside vacuum—a big move lower once the shorts have covered their positions and there’s no more forced buying,” he added.
According to Cramer, DeMark uses a 13-session countdown pattern that tells him when a rally or a decline is likely to change directions, or in other words, reach a top or bottom. DeMark’s methodology calls a bottom when the countdown gets to 13, Cramer added.
Cramer said that DeMark spotted patterns in the S&P 500 and the ETF that tracks the Nasdaq-100 that suggest both are days away from making bottoms.
Here’s a look at the QQQ since September, including the two trend exhaustion 13s late last year.
The Nasdaq-100 is at buy countdown 10, so it needs three more successively lower lows in order to potentially reach a bottom.
Now, Cramer noted DeMark finds the Nasdaq-100 is in the midst of a buy countdown 10.
“That means we need three days of successively lower lows, with lower closes, before the downside is truly exhausted,” Cramer said. “In other words, DeMark’s expecting one last leg lower before the weakness in tech runs out of steam.”
DeMark is seeing a similar pattern playing out in the broad S&P 500. Here’s a look at DeMark’s analysis on the benchmark U.S. stock index since September.
The S&P 500 is also currently at countdown 10, meaning it needs three days of successively lower lows to possibly reach a bottom.
The S&P also is at a 10 on DeMark’s buy countdown, Cramer explained. “Again, that means we need three days in a row with lower lows and also lower closes before the selling exhausts itself,” he said.
Put the two pieces of analysis together, and DeMark believes the selling on Wall Street is “not over yet,” Cramer said. “We can see the light at the end of the tunnel, but we’re still in the tunnel.”
Cramer’s breakdown of DeMark’s analysis Wednesday comes one day after he looked at charts from technical analyst Carolyn Boroden, who predicted that the S&P 500 will soon have a temporary bounce.
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