Investors are often told they should buy when there's blood on the streets. But even with a volatile October nearing an end, Jim Cramer told his Mad Money audience Tuesday night that it's not clear that there's enough carnage on Wall Street to warrant buying.
Cramer and Lang started by looking at the weekly chart of the S&P 500. You can see that the S&P has already erased all of its gains for the year, but Lang thinks it could have more downside. Why? First, it just made its first weekly close below the 50-week moving average since early 2016 and this is something that really spooks chart-watchers. Second, the Moving Average Convergence Divergence or MACD indicator, a tool that helps technicians predict changes in a security's trajectory, made a bearish crossover earlier this month, the first one since the meltdown in February. Until the MACD recovers, which could take several weeks, Lang says the S&P should keep trending lower and any rallies will likely be temporary.
Cramer and Lang next looked at the S&P's monthly chart. The first thing that jumps out is that markets really haven't come down that far from the highs. Lang points out that this will be the S&P's first down month since March. The MACD is on the verge of making a bearish crossover here, too -- the first time since early 2015. How low can we go? Lang thinks that the S&P could potentially fall to 2,300, down 13% from these levels, but that could take several months to play out.
Next, they looked at a weekly chart of the Nasdaq 100, the 100 largest non-financial stocks in the Nasdaq Composite. The Nasdaq 100 has fallen sharply below its 50-week moving average, which has become a new ceiling of resistance. The MACD made a bearish crossover for the first time since March. Lang notes that the Chaikin Money Flow, which measures the level of buying and selling pressure, is actually still in positive territory, but it's been declining -- just imagine what happens when that goes negative. Meanwhile, the Relative Strength Index or RSI, an important momentum indicator, has fallen, but it's not quite at oversold levels yet, which means the chart's not even signaling a short-term bounce.
On the Nasdaq 100's longer-term monthly chart, the decline so far looks a lot less significant. Lang says the momentum here is weak, and the volume has been rising, suggesting that there's more pain to come. The MACD's made a bearish crossover for the first time since 2015. But index isn't even close to being oversold. The Relative Strength Index is actually still closer to overbought than oversold right now.
The weekly chart of the Russell 2000, the small-cap index, is clearly the worst of the major indices. The Russell 2000's trying to find support around 1,450, but it's already broken down below its 50-week moving average. The MACD indicator rolled over in September and has never recovered. And Lang points out that the volume here has been rising with the heavy selling, meaning big institutional money managers are dumping these small-cap stocks.
On the Russell 2000's longer-term monthly chart, Lang wouldn't be surprised if it heads all the way down to its 50-month moving average at 1,330 over the next few months, down about 10% from here. The MACD indicator just rolled over for a bearish crossover, which suggests that there's more pain to come. Lang says that the negative momentum and the high volume selling tell the tale here.
Lang believes that it's too soon to start picking at this market. In fact, he says buying here would be like trying to catch a falling knife.
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