Charts suggest the market could rally through mid-December

CNBC’s Jim Cramer on Tuesday said that the market’s current rally could last through the middle of next month, leaning on charts analysis from Jessica Inskip, OptionsPlay’s director of education and product.

“The charts, as interpreted by Jessica Inskip, suggest that this rally could potentially have real legs, at least through mid-December. Things could change as we get closer to the next Fed meeting a month from today, but in the meantime, there’s a lot to like about this market,” he said.

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Stocks rose on Tuesday after the October producer price index data signaled that inflation is cooling, just one week after a lighter-than-expected consumer price index report indicated that the prices of goods and services are increasing at a slower pace.

In addition, the Federal Reserve’s next meeting and the November consumer price index data release don’t take place until next month. 

“Even if [Fed Chair] Jay Powell decides not to ease up on the rate hikes, we’re not going to know about it for weeks, which means the averages are free to romp in the meantime,” he said.

To explain Inskip’s analysis, Cramer examined the daily chart of the S&P 500.

Inskip noted that there was a “bullish divergence” (in yellow) in late September and early October, he said. This means that two important momentum indicators — the relative strength index and the moving average convergence/divergence line — gained strength at the same time. Their upturn predicted the market’s recent rally, according to Cramer.

Then, on Wednesday, the S&P 500 broke through a key Fibonacci level, an area where a stock might pivot or encounter resistance. Inskip believes its next stop could be the 200-day moving average, shown in the chart — a level the S&P 500 couldn’t reach at its peak in August.

“Maybe this time will be different now that inflation finally seems to be going in the right direction,” he said.

For more analysis, watch Cramer’s full explanation below.