Analyst Larry Williams sees a budding bottom

CNBC’s Jim Cramer on Friday explained new technical analysis from veteran charting expert Larry Williams that indicates the market is headed for a bottom.

“I know it’s hard to believe anything positive right now, but I said the same thing in April 2020, and that’s when Larry Williams made one of the best bottom calls I’ve ever seen,” the “Mad Money” host said. referring to when the market surged after the start of the Covid pandemic sent shock waves through the global economy.

“He says this is it… I wouldn’t bet against him. I trust his predictions more than I despise this market, and I say that as someone who really hates the movie.”

Cramer began his explanation of Williams’ analysis by looking at the S&P 500 futures chart.

The futures line is in black and the advance/decline line, a cumulative indicator that measures the number of stocks going up daily versus the number going down, is in blue, Cramer said.

Williams sees the advance/decline line as an indicator of internal market strength or weakness, according to Cramer.

“Right now, you can see that while the S&P spent the last week falling into oblivion, the advance/decline line has held up much better. In fact, it’s been going up steadily,” he said.

He noted that such a pattern, when a major indicator goes the opposite way of an index, is called a bullish divergence. “According to Williams, this advance/decline line action is incredibly positive for the market. He tells you that from a breadth perspective, the worst of this decline may be behind us,” Cramer said.

Next, Cramer inspected the S&P futures daily chart plotted with the On-Balance Volume Index in purple. The chart reveals that trading volume has already started to “dry up on the sell side,” Cramer said.

He noted that the on-balance volume index is a cumulative indicator that measures volume flow by adding volume on high days and subtracting volume on low days.

“We care about this because volume is like a polygraph test for technicians: high-volume moves tell the truth. Low-volume moves [are] often misleading,” he said.

And because the on-balance volume line has held despite the S&P hitting new lows, the chart is consistent with what Williams would expect to see in “a bear market where some of the top money managers finally started to buy stocks more aggressively,” Cramer. saying.

He also showed a chart showing S&P 500 futures plotted with the Williams Insider Activity Indicator, in green.

“Look at the bottom of the chart: This is the Williams Trader Commitments Index, which shows what professional money managers are doing with their futures positions,” Cramer said. “Even though the market is down, Williams sees the professionals buying here, and that often leads to significant rallies,” she added.

Finally, Williams looked at the dominant cycles of the S&P 500, which typically last 75 days.

“Right now, that cycle says the S&P is ready to go…and if the cycle holds, Williams would expect it to continue through mid to late June,” Cramer said.

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