Charts show S&P 500 may struggle in August, gold appears to be recovering

Investors could find positive returns on gold as the S&P 500 enters a historically difficult month, CNBC’s Jim Cramer said Monday.

“The charts, as interpreted by legendary Larry Williams, suggest that August could be a tough month for the S&P 500, but a formidable month for gold. Given the backdrop at the moment, this doesn’t would not surprise me at all, ”said the host of“ Mad Money ”.

“Remember, during the initial debt ceiling debacle ten years ago, the stock market collapsed and… gold performed really well,” Cramer added, hinting that a two-year debt ceiling suspension expired at the end of July and Congress must now either increase the government’s borrowing limit or suspend it again.

Looking at the S&P 500, in particular, Cramer said Williams sees a decrease in magnitude when counting the number of rising stocks versus falling stocks. This adds to a difficult seasonal period for the general stock index, which is up 16.8% since the start of the year, Cramer said.

“Just since the beginning of summer, [Williams] may indicate three times the S&P hit higher highs, but the Advance / Decline line failed to take a higher reading, meaning the market rose on a not-so-hot width, ”explained To screw up.

“For Williams, this suggests that many fund managers need to sell a lot of their positions. He says he’s seen this trend before and it’s not healthy. Normally when stocks recover, the line Advances / Decline is expected to reach new heights. But it isn’t. Is happening and that means this move could have feet of clay, “Cramer said, while revealing that Williams has taken a” small “position. short on E-mini S&P 500 futures.

The technician also sees bearish signals in a momentum indicator called equilibrium volume, which is calculated by adding the volume of the S&P 500 on positive days and subtracting it from negative days, Cramer said.

“The S&P is reaching new highs, but the equilibrium volume remains stable. This is another negative point. Remember, for technicians, the volume is like a lie detector. When it is low, it is. means a move is misleading. Another reason Williams is worried about the rest of this tough seasonal month, ”Cramer said.

On the flip side, Cramer said Williams’ analysis shows a more bullish short-term outlook for gold. “Williams is long gold for precisely the same reason he’s worried about the S&P: the seasonal model,” Cramer said.

In addition, Cramer said that data from the Commodity Futures Trading Commission shows that trading hedges have recently bought gold futures in a robust fashion, which has historically led to “a nice rally.”

Another piece of information that works in favor of the precious metal is the value of gold relative to Treasury bonds, according to Williams’ analysis, Cramer said.

“As you can see from the chart, not only does the precious metal have a strong seasonal trend on its side… it’s extremely undervalued relative to bonds,” Cramer said.