CNBC’s Jim Cramer took a look at charting action in the blue chip index on Tuesday to gauge how stocks can trade ahead of the highly anticipated November election.
The “Bad money“Host was considering an analysis from Tom DeMark, a trusted technician known for his market timing indicators, and financial analysis software company DeMark Analytics.
“The charts as interpreted by the legendary Tom DeMark suggest so Dow – and the rest of the market – could take one final step up by the end of the week, followed by a potentially ugly sell-off, “said Cramer.
“The same method DeMark uses to tell DeMark we are out with a bruise also tells him it may only be two or three weeks, with a possible low point just before election day,” he continued. “So you have to pull the trigger and buy something.”
Election day, which historically takes place on the first Tuesday after the first Monday of November, is scheduled for November 3rd.
Based on daily return activity in the Dow industrial index, DeMark sees the 30-stock average rise about 2.5% from current levels before peaking and running out of power in the short term. He predicts the Dow could hit 29,400 or 29,550.
The same sequential pattern that DeMark followed to predict the big September sell-off shows signs that it could repeat itself again. If the Dow goes through another 13-session sequential pattern, where it closes above the point it closed two days earlier, it could trigger a downtrend, according to DeMark’s forecast, Cramer said.
The Dow fell for the first time in four trading days on Tuesday, shedding nearly 158 points, down 0.55% to 28,679.81. The index is up 8% from its September lows, but remains 420 points below the level it closed prior to the sell-off last month.
“Assuming this pattern continues, he thinks we have one last leg up … before this rally possibly runs out of steam by the end of the week,” said Cramer. “I don’t want to hear that, but it would make sense – we had a monster run in winning season.”
DeMark’s technical analysis takes a proactive rather than a reactive approach to timing the market, Cramer explained. The respected technician uses his method to track critical price levels to find moments when a trend could change.
Investors are closely watching the temperature in Washington, including the likelihood of President Donald Trump or Joe Biden winning the White House and the partisan makeup of Congress when the votes are counted. Experts have warned that this could be delayed due to delays to the high number of voters who post ballot papers during the pandemic.
Investors are also watching to see if the Trump administration and current Congress can push through yet another tax package to provide much-needed financial aid to companies and individuals affected by coronavirus restrictions.
“Let’s say the Dow peaks in a few days and then it goes down sharply,” Cramer said.