Charts suggest IBM stocks may be ready for a fall rally, Cramer says

IBM stocks could see a rally later this fall, CNBC’s Jim Cramer said Tuesday, drawing on technical analysis provided by veteran chartist Larry Williams.

“The charts, as interpreted by legendary Larry Williams, who currently has the hottest hand in the business, suggest that IBM may continue to drop over the next few weeks,” said the host of ‘Mad Money’ .

“This is one of Larry’s favorite seasonal coins, and as we saw yesterday, you bet against him at your own risk,” Cramer said. Cramer was referring to Williams’ premonitory call earlier in the month that September 17 was the optimal date to sell stocks in order to face what is usually a rough end of September. Wall Street went through its worst day in months on Monday.

Williams likes to use the dominant weekly cycle data for stocks to gauge where they might trade in the future, Cramer explained, and as far as IBM is concerned, the technician sees a 72-week cycle for stocks.

“This year, the lows of this cycle are expected to arrive in late October. If the same trend continues this year, this could be the perfect place to start buying this stock on the downside,” Cramer said.

The “Mad Money” host also pointed to a graphic by Williams that shows IBM’s true seasonal pattern. This is represented by the blue line in the graphic below.

“Williams has noticed that IBM tends to be one of the best seasonal bets in the overall market. This is another trade that he has been following for almost 20 years. October,” Cramer said. “You usually get a bottom in this towards the end of next month and that is usually followed by a good rally.”

Another technical indicator that could turn bullish in IBM’s favor is what Cramer called the Williams panic indicator. It is indicated in red in the table below.

“If you bought the stock every time the panic indicator went over 20 … [investors] posted some nice gains, ”Cramer said, noting that his trend was up towards this key level, but it remains short for now.

“However, if we get more sales – and this is what Williams expects for just about everything – then the panic indicator will soar and that is his signal to buy the stock… hand on the fist, ”Cramer said.