Investors should be a little more patient before going all-in on the unsettled stock market, CNBC’s Jim Cramer said Monday, summarizing the latest takeaways from technical analyst Mark Sebastian.
Sebastian looked at the trajectory of the VIX, Wall Street’s so-called fear gauge, and the S&P 500 in order to help make sense of heightened volatility during the ongoing Russian-Ukrainian conflict.
The founder of OptionPit.com “thinks there will be more pain, but if you’ve got some cash on the sidelines, he says there will come a point when you want to start putting it to work,” Cramer said.
“In the meantime, he predicts more wild days like last week when we exploded higher, or today when the market came right back down and then went up again,” the “Mad Money” host said after Monday’s mixed session.
The VIX, which measures implied volatility of S&P 500 options, and S&P 500 are supposed to head in opposite directions. Cramer said that in order to become more confident, Sebastian wants to see stocks make a new near-term low while the VIX is not making a fresh near-term high.
Here’s how the S&P 500 and VIX have traded so far in 2022.
The year-to-date moves for the S&P 500 and the VIX.
Mad Money with Jim Cramer
“When the VIX and the S&P diverge, it tells you that the trend is about to change. That will be the moment [Sebastian] says to jump in with both feet … like October 1990,” Cramer said, referring to when the stock market bottomed during tensions associated with what became known as the Gulf War.
The chart below shows that divergence in 1990.
The VIX and S&P 500 from July 1990 to June 1991.
Mad Money with Jim Cramer
However, at present, Cramer said Sebastian does not believe the market has reached that point just yet. Instead, the technician sees VIX futures in a state of backwardation, which to him is additional proof the market is “stressed” and therefore more “bad things can happen,” Cramer explained.
Backwardation, a relatively uncommon occurrence, happens when the near-term VIX futures are more expensive than those for months later in the year.
The chart below shows VIX futures for each month through November.
VIX futures have entered a state of backwardation, when near-term contracts are more expensive than those for months later in the year.
Mad Money with Jim Cramer
“You’ve got to steel yourself to get through this period, so you can be opportunistic when the moment comes to start buying, and that moment will come,” Cramer said.
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Source: https://www.cnbc.com/2022/02/28/jim-cramer-charts-suggest-its-not-time-to-go-all-in-on-stocks-yet.html