Emerson Is Flashing Bullish Signs: 'Off The Charts' With Cramer

For his "Off the Charts" segment of Tuesday's Mad Money show, Jim Cramer talked with Tim Collins, a technical analysts and contributor to RealMoney.com.

In light of Friday's sharp rotation out of tech stock winners, Cramer focused on so-called smokestack stocks, and one in particular: Emerson Electric (EMR) , the big industrial conglomerate.

Collins said Emerson may be flashing more than a few sparks. Over the past four months, the stock has been trading sideways in a channel between $57 and $61, after breaking out to the upside with a major rally in January. In recent days, the stock has been pushing at against its ceiling of resistance. According to Collins, if the stock can get back above $61 and stay there for a few days, the breakout will become real, and the ceiling of resistance will turn into Emerson's new floor of support.

It's not just the price action that has Collins feeling bullish. There are also the Bollinger Bands -- these brackets that measure volatility. Emerson's upper Bollinger Band has been pushing higher, similar to Emerson's last big breakout in January. The Bollinger Bands expanded again in April, but that time the stock failed to break through. When Emerson rallied in April, it did so on low volume. Lately, the stock has been advancing on very strong volume, which suggests to Collins that this run is the real deal.

On top of that, the full stochastic oscillator, which measures whether a stock has gotten overbought or oversold, is signaling the stock isn't overbought at all. Collins believes that Emerson could be ready for a quick move up to $63.

Longer-term, though, he thinks it could go even higher. Emerson's weekly chart is still in a nice long-term uptrend. Here the recent sideways move just looks like a little consolidation within a much larger bullish pattern. On the weekly chart, Collins sees a number of signs that suggest Emerson is ready to resume its ascent.

Last month there were two major bullish signals. First, there's the Stochastic Relative Strength Index or RSI, an important gauge of a stock's momentum. This indicator was in bearish territory back in May, but then it made a bullish crossover and now it's in positive territory. Second, there's the normal full stochastic oscillator that measures when a stock is overbought or oversold. The oscillator made its own bullish crossover, where the black line goes above the red one, right around the same time. Collins says this pattern appeared before: in late October of last year and in September of 2015. Both times, the stock rallied hard in response.

Collins also likes what he's seeing with another unusual technical tool, the 40-week trading envelope. A trading envelope tracks of a stock's moving averages, and then gives you a range around it. In this case, Emerson has been trading above this envelope for months, and Collins says when that's the case, the odds tend to favor the bulls.

Overall, Collins expects Emerson Electric to amp up the juice and continue trading higher, perhaps making its way to $70 over the next six to eight months. If he's wrong and the stock goes lower, he still thinks there's a nice floor of support at $57, although if things get really bad and Emerson goes below $55, all bets are off.

To read a full recap of this episode of "Mad Money," click here.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

At the time of publication, Cramer's Action Alerts PLUS had no position in stocks mentioned.

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