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If you're going to pick stocks, focus on the fundamentals and not on the prevailing "wisdom" of patterns. That was Jim Cramer's lesson to his Mad Money viewers Monday as once again February opened with a round of "As goes January, so goes the year" anecdotes.
Make no mistake, there are patterns to things, Cramer told viewers. Technical patterns are a weekly focus on Mad Money, as are economic ones like "don't fight the Fed." But when it comes to seasonal patterns, they just don't hold up.
So many of the old tried-and-true patterns were proven wrong last year. Cheap gasoline always translates into more consumer spending, but not last year. Maybe that's because online sales are hard to measure, or maybe it was due to unseasonably warm winter weather. No matter the reason, it didn't happen.
The decline in the price of oil itself doesn't make sense either. Typically, oil demand is what drives prices, but not last year when supply was in the driver's seat, Cramer said.
Whether you're looking at our market's inexplicable link to China, or the pricing of bank stocks, nothing that used to work seems like it currently works anymore. That why Cramer told viewers to forget the traditional wisdom and go back to the other tried-and-true way to make money, by doing your homework.
Off the Charts
In the "Off The Charts" segment, Cramer went head to head with colleague Carley Garner over the direction of both oil and the markets and the crazy linkage between the two.
Looking at a daily chart comparing the S&P 500 versus west Texas intermediary (WTI) crude, Garner noted a strong correlation between the two, a correlation that soared to 95% as oil prices fell below the key $40 a barrel level. She noted that in a normal market, that correlation would be close to 30%.
Garner fell short of falling into the trap that is trying to predict where oil will bottom, but she noted that a retest of the $26 lows is likely and if that test doesn't hold, the next floor of support is $18 a barrel.
As for the markets overall, Garner said the relative strength indicator for the S&P is extremely oversold, more so than during the financial panic in 2008. The index is likely to go lower before it goes higher, she concluded.