When the stock market is this volatile, CNBC’s Jim Cramer likes to use technical analysis to get a better read on the investment landscape.
With Wall Street awaiting the Federal Reserve’s decision on whether it will pause or continue hiking interest rates after December, companies are facing a binary outcome, he said: either the Fed pauses after the widely anticipated December hike and 2019’s earnings results are more or less safe, or it doesn’t, and cyclical companies are likely suffer.
But even “in a confusing and volatile market, there are still trades that have worked year-in and year-out for decades,” Cramer said Tuesday on “Mad Money” as stocks ticked up after a brutal Monday sell-off.
For more on that, he turned to Larry Williams, a legendary technician with over 50 years of experience trading futures, commodities and stocks. Cramer called Williams, who has also written 11 books, created numerous technical indicators and runs the website IReallyTrade.com, a “chart master.”
Williams saw two ways to make money as 2018 comes to a close. Both were in the retail sector, which tends to perform strongly in November and December as companies offer Black Friday, Cyber Monday and general holiday sales.
First, Williams turned to Home Depot, the country’s largest big-box home improvement chain. He suggested buying shares of Home Depot five trading days before Thanksgiving — this year, that falls on Thursday, Nov. 15 — and then holding it for 10 more trading days before exiting the position.
“Williams has back-tested this trade,” Cramer said. “If you did this using a stop-loss order $5 below where you bought Home Depot, how often would this strategy have made you money? Williams ran the numbers, [and] get this: over the past 33 years, his Home Depot trade would have been successful 33 times. Yep, it’s worked every year since 1984.”
The “Mad Money” host clarified that Williams was recommending a trade, not an investment. Even as the technician believes Home Depot is gearing up for a rally, if his trade doesn’t work, Cramer suggested simply ringing the register early.
Another way to play the strength in retail, which Cramer said could also boost shares of Target, Costco and Amazon, would be by buying into the SPDR S&P Retail exchange-traded fund, or the XRT, Williams suggested.
He noted that since the XRT was created 11 years ago, buying the ETF between two and five trading days before Thanksgiving and selling it 10 days later has given investors a healthy gain every single year.
Like for Home Depot, Williams said this Thursday would be the best moment for investors to pounce and suggested using a $5 stop order to protect against potential downside.
All in all, “the charts, as interpreted by the legendary Larry Williams, suggest that Home Depot and [the] XRT would make terrific trades if you buy them on Thursday and sell them 10 days later,” Cramer said. “I think he’s got a point, as this tends to be a good time of the year for retail, regardless of what else is going on in the market.”
Disclosure: Cramer’s charitable trust owns shares of Amazon.
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