With the markets trading on lots of emotion surrounding China trade worries, Jim Cramer on Wednesday's episode of Mad Money, checked in with Marc Chaikin, creator of some of the most important tools in cool-headed technical analysis.
Cramer and Chaikin began by reviewing three of Chaikin's picks from a few weeks ago: Marathon (MPC) - Get Marathon Petroleum Corporation (MPC) Report , EOG (EOG) - Get EOG Resources, Inc. (EOG) Report and GE (GE) - Get General Electric Company (GE) Report . Through Tuesday all three were up more than the S&P 500 over the same period. (GE's shares were trounced Wednesday after a poorly received presentation from CEO John Flannery that raised doubts about the industrial giant's remaining dividend.)
Chaiking focuses on three indicators to decide whether a stock might be worth buying: The Chaikin Money Flow, which measures buying and selling pressure in a stock; the Chaikin Relative Strength indicator, which measures performance vs. the S&P 500 over six months; and the Chaiking Power Guage, a proprietary tool that factors in 20 fundamental and technical inputs to generate readings from very bearish to very bullish.
When Chaikin recommended Marathon earlier this month, all three gauges were giving positive readings. With the stock up about 7.5% since then, he recommends holding on to Marathon here, but not buying more. If you don't own any Marathon, Chaikin recommends waiting for a pullback.
The same is true for EOG Resources, which also had positive indicators earlier this month, but which now appears overbought. Chaikin wants to see more of a dip before adding any more shares.
General Electric was up 9% before Wednesday's debacle. But the sharp pullback is exactly the kind of thing Chaikin wants to see before diving in.
Among new ideas, Chaikin likes Akamai Technologies (AKAM) - Get Akamai Technologies, Inc. Report which started as mostly a streaming video play, but which is expanding into new areas like cloud security.
For Chaikin, it's all about his three key indicators. The Chaikin money flow has moved into positive territory in recent weeks, meaning there's institutional buying. The Chaikin relative strength has been looking good for months, and the Chaikin Power Gauge is flashing a big green buy signal.
However, Akamai is very overbought, which is why Chaikin thinks you might want to wait for a pullback to somewhere between $72 and $74, down at least two and a half bucks from these levels.
Chaikin's methodology also points out when a stock might need to be sold, such as Walmart (WMT) - Get Walmart Inc. Report . While Walmart reported a solid top and bottom line beat last week, the stock keeps getting slammed. The Chaikin Money Flow has spent months in negative territory. Meanwhile, the Chaikin Relative Strength is very negative. And the Chaikin Power Gauge is red, which is bearish and means sell.
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Over on Real Money, Cramer on why the market turned against Toll Brothers (TOL) - Get Toll Brothers, Inc. Report . Get more of his insights with a free trial subscription to Real Money.
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