CNBC’s Jim Cramer said Tuesday that this week could be a “crucial moment” for investors to buy into the S&P 500, citing analysis by Carley Garner, a market strategist at DeCarley Trading.
Garner sees a “low chance” of a rebound later in the week, but a more likely scenario is some stabilization around the S&P 500’s current trading point or a dip to 3,500, said “Mad Money” host. .
“However, at this point, she wants you to be a buyer, not a seller, because eventually the bears will run out of fire and some of the money on the sidelines will re-enter the market,” he added. “Guys, this is a bullish scenario.”
The S&P 500 slipped further into a bear market on Tuesday after a fifth day of losses. The Dow Jones Industrial Average edged lower and the Nasdaq Composite edged up.
“Even if it’s bad now, stocks tend to bottom out when fundamentals are at their worst, because averages don’t reflect the present, they reflect our expectations for the future, say 6 to 12 months from now,” he said.
According to Cramer, Garner believes the S&P 500 may be oversold and is poised for a rebound.
The relative strength indicator at the bottom of the chart, a key momentum indicator, is near 30. This shows that the price is becoming oversold. Add to that the divergence between the RSI and the S&P 500 and sellers are starting to tire, Cramer said.
According to Cramer, Garner also believes that the recent downturn in the University of Michigan’s consumer confidence index indicates that the S&P 500 is about to bottom out.
If the S&P 500 “miraculously” bounces back above 4,030 — a key support floor about 300 points above current levels — the current decline could be chalked up to a “bear trap,” S&P Will surge around 4,400. But without a recovery, the index could fall to the next level of support near 3,550, Cramer said.
“But, it’s a very big one, but if we get back down to 3,500, she thinks it’s going to be a buying opportunity. Of course, she could be wrong,” Cramer said.
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