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CNBC’s Jim Cramer said on Wednesday that investors can expect a smooth ride as Wall Street tries to put a short but turbulent period of equity decline behind it.
After the market recouped all of its losses from Monday’s big plunge, Cramer looked at the chart’s action to predict the next move.
“The charts, as interpreted by Carolyn Boroden, suggest that the S&P 500 is done being slammed, with more potential to come,” said the host of “Mad Money”. “I share Boroden’s positivity in the market in general… especially now that the recent earthquake tore so many weak hands from the market.”
In her analysis, Boroden, who is known for Fibonacci trading strategies, spotted a repeated trend when the S&P 500 falls sharply in three days.
In a three-day period that ended on Monday, the index fell almost 3%. A similar multi-day rout occurred in mid-June, twice in May, and once in March and January, Cramer noted.
“A lot of times this year the S&P will pull back quite sharply, but that only lasts three trading days from the last new high,” he said. “Boroden is pretty confident that this pattern has been repeated before.”
“If we had been down yesterday it would have been a different story, but we came back roaring. For her that means the collapse is probably over,” he said.
Boroden, who also contributes alongside Cramer on RealMoney.com, is keeping an eye on 4,359 in the S&P 500. If the index breaks that resistance ceiling, its next targets would be 4,437 and 4,492, Cramer said.
Investors could expect more turbulence, however, if the S&P 500 breaks the aforementioned pattern to drop from a new high for more than four trading days.
“In that case, she would be much more concerned about the possibility of a larger downward correction. But for now, that has not happened yet and the future looks bright, which corresponds to what we’ve seen during the results season, ”Cramer said.
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