CNBC’s Jim Cramer on Monday said that the market could have a strong rally through late August, pointing to analysis from legendary market technician Larry Williams.
“The last time we spoke to him about the broader averages in late May, he predicted that after some choppy trading the market would have a strong rally through late August. Right now, what he’s seeing in the futures confirms that thesis,” he said.
To explain Williams’ analysis, the “Mad Money” host first noted that Williams believes commercial hedgers in stock futures, which are composed mainly of banks, mutual funds and governments, tend to have the best understanding of their industry compared to professional money managers and run-of-the-mill investors.
“When these guys get very bullish in their positioning … it’s often a great buying opportunity,” he said.Â
“Especially at important bottoms, Williams points out that the commercial hedgers tend to be bullish, while the large speculators like money managers, and of course the public, tend to be bearish,” he added.
He highlighted this pattern by showing the weekly chart of the Dow Jones Industrial Average futures from 2018 through today.
The red line represents the net position of commercial hedgers. Cramer noted that commercial hedgers and money managers have been going in the opposite direction recently.
“While the former get more bullish, the latter have gotten more bearish, shorting the futures aggressively. That matters because, historically, when the commercials and the hedge funds are going in opposite directions, you’re much better off betting with, yes, the commercials,” he said.
“Markets bottom when the hedge funds throw in the towel and the public throws in the towel. And based on the history, he suspects that’s exactly what’s happening right now,” he added.
For more analysis, watch Cramer’s full explanation in the video below.