Given that almost all my work, it is heretical and antithetical. Not for a minute, as i explain in get rich carefully, have i become a chartist myself. I describe the sectors, and overlay them on my broader world view at this moment. Charters could care less about this stuff. I wonder if they could do their jobs without the Companies Names blacked out. Some of them hate the distraction of knowing about the company. Now ive become pretty proficient at charting over the years, but i still rely on the individual work of professional technicians to demonstrate how to use charting and to demonstrate techniques that i can teach you. That is why i am picking the best of the charts of some of the best technicians we have worked with, to the point where im astonished at how accurate they can be. So i guess you have to call me a longterm believer. I have started nearly every saturday morning using the standard and poors charts, for formerly on paper, now in electronic distribution. I then go over the Research Available for the most winning charts many. And they also become segments for the shows that you see later in the week. Why do the charts work . First you must consider them as if they are footprints at the scene of a crime. They trace out what big Money Managers might be doing with their buying and selling of dollars. These portfolios say that they oof often know more than you and me. It puts together clues that these big boys leave. Theres a remarkable selffulfilling nature of charting stocks. So many take them to heart that they will avoid stocks with predictably terrible charts and go with stock that have positive moves no the past. Dont i know it. Theyd have me research the ones with most predictable patterns to get a handle on what might really be going on. We got some of our best ideas from those brainstorming charting sessions, to produce excellent short and longterm results. All of charting and Technical Analysis starts not just with the pictures of individual stocks but also what are known as the internals, internals. Patterns that give you clues of the direction of the whole stock market. For years since the great depression, there has been tremendous skepticism about any advance of stocks. Well, i brielieve the systemic risks have decreased, you will lose money either way. For Technical Analysis helps you determine the overall movement of the market. Sometimes technicians, everything hinges on putting together the charts of individual companies and the charts of the bigger averages to create comparisons that elucidate about true market strength. Theyre looking for what is known as confirmation of a move to detect its legitimacy. I think confirmations are incredibly important to the safety of a move. They need to be explained closely. The most important and obvious, lets say the dow jones hits a new high. It will not be sustainable unless the dow jones transportation index hits a high or confirms the breakout status of the dow itself. It traction planes, trains, freight, isnt that a good gauge . If the industrials and transportation hit new highs i often tell you that the move is legitimate and it can be trusted, it is real. This is some of the oldest technical work, dating back to charles dow who created the dow theory. You hear at the top of the show that i love how the transparts are acting, i look at a host of other sectors, the banking, the housing, the semiconductors and the rth, that all important etf that encompasses the big retailers. I like to see them all move up in synch before i bless a market for you. You have to put the maximum amount of chips on the table, oh, boy, but is the inverse true . If we get a move, a move up without confirmation from the majority of these indeces, the whole rally could be a fakeout and cant be trusted. The classic example. If you go back to the move up to record highs before the great recession, you wont notice something pretty incredible. You will notice that there was almost no participation among the financials, the retailers or the techs. Technical analysis got you out of that market before it was too late if you followed those indicators. Did much better than the fundamentals. What else do i look at . I determine if the concentrated. I like a lot of breadth. First a company must be doing exceptionally well. En third, larger things like the Federal Reserve have to be successive. You run the gauntlet, you have a good stock. A stock i want to buy on any pull back. And if there are a lot of stocks in the new high list for many different industries, thats actually a terrific sign. So heres the bottom line, you may not be a technician, but you need to know what the charts are saying and how to read the internals to verify a real move or a phony one. Stay tuned and well go over a whole host of patterns that predicts pretty much everything we do, but on Stock Selection every single day. Jim in michigan. Caller thanks for taking my call. Thrilled that you called. Whats up . Caller ive got a question for you. In the segment, you were talking about secular stocks. Could you define for me once again, what are secular stocks and maybe give me an example or two. Certainly, this is an important issue, its a term that gets thrown around. Sec har means a secular growth stock is something that does not need the Gross Domestic Product of the world to increase to beat the numbers. Some of the classic secular grower stocks would be some of the biotechs, some of the retailers that have terrific growth, gary in california, gary. Caller mr. Cramer, booyah to you. My question to you is regarding dividends in a down market, sir. If youre accumulating difficult demds dividends, is it better to reinvest them or take the money as cash and possibly reinvest that in other opportunities . We dont know when a down phase is going to end, and we know the power of compounding is an amazing thing, so were going to stick, always on this show, i know it sounds pretty pedestrian, but were always going to opt in favor of reinvesting, because fortunes have been made through the power of compounding. Ive got to go with that, regardless of the nearterm consequences, because im thinking longterm for you. Fundamentals . Oh, theyre key, but technicals matter, too, tonight im bringing you into the mind of mastermind charters so you can see the whole pictures. On mad money tonight, we know charting is important, but what technical tool can help you detect floors and ceilings . How can you tell if a company is overboug overbought . Why dont you stick with cramer dont miss a second of mad money. Follow jimcramer on twitter, tweet cramer, madtweets. Send jim an email at mad money. Cnbc. Com. Or give him a call, 1800743cnbc miss something . Head to madmoney. Cnbc. Com. Whats better than mad money . How about more mad money. Follow on facebook, twitter and instagram to go one on one with cramer. What other questions do we have . I always tell people we need to start requewith an index fund. Go behind the scenes with the most interactive show on television. If you cant explain in three bullets why you are buying a certain stock, dont buy. Follow mad money today. Narrator it wasnt that long ago. Years of devastating cutbacks to our schools. 30,000 teachers laid off. Class sizes increased. Art and music programs cut. We cant ever go back. Ryan ruelas so vote yes on proposition 55. Reagan duncan prop 55 prevents 4 billion in new cuts to our schools. Letty munozgonzalez simply by maintaining the current tax rate on the wealthiest californians. Ryan ruelas no new education cuts, and no new taxes. Reagan duncan vote yes on 55. Sarah morgan to help our children thrive. Tonight we are offering the best of the best of Technical Analysis, a one stop shop of everything you need to know about charting. Spotting bottoms for best entry points and examining ceilings for the best places to exit or sell. When you pick individual stock, you are betting from the moment you buy them that theyre going to go higher, i fknow, Pretty Simple concept, but how often do you do solid work on a company to decide if its the right time to pull the trigger, because your homework is finished, and youre buying oblivious to the stock. Maybe its not the right moment. I now say youre being shortsighted if you dont check out how the stock looks. Its not just the right time since you have done the homework. I would recommend looking at the stock as part of the homework. Get it in your head, get it ingrained in your thinking. Sometimes finding bottoms after lucrative declines i heard the haynes bottom call based on the innate feeling. I know my friend doug cast, thats part of the street. Com family, sometimes known as being an aggressive bear had turned positive. He was saying we were in a generational bottom. But i was still skittish about picking any individual stock to recommend to you. So i was looking for a situation about as bulletproof as i could find. I came up with at t, the phone company. It had so much going for it. You have to go back in the wayback machine, but it included a smashing rollout of the apple iphone, which had record profits. Had an outsized dividend, the yield was just about higher than any stock in the dow. The stock kept plunging every time i thought it might have firm footing. In other words i did my research, thought it was time to buy. No. No. Check the chart. I waited. I waited for a few days when the stock seemed to stabilized and decided at last that it might be time to hold. Its best to check with the chartisti chartists, so i did. I actually put in four, four chartists. It was definitely worth considering for an investment. They didnt care at all about the fundamentals. Take a look at this chart. First, all four technicians agree thad at t had established what is known as a climax low at at 21, back at the tsunami of selling. We have to understand we were at one of these moments that was so hideous. You see the big lift, big lift in stock. I dont want to give away the story. Thats where lots of sellers had capitulated, right here. But buyers had started to step up to create a base, okay . See the extended base . Or floor at the stock at that level. Then look at the volume and all the sum of the transactions of that period. Thats a sign that the sellers had exhausted themselves. Most of the big portfolio owners who flooded the stock had fled it by now. Think about it like this. Until you got the climax, there were so many morse sellers than buyers. As long as sellers overwhelm buyers with their dumping, no base can develop. Big give up. Remember, technicians dont care why that might be the case. Theyre just monitoring price and volume. When they see price gets larger or expands, that means the stock has found its floor, its time to buy. Its safe. Thats where the buyers are at last equal to the sellers. And thats a form of equilibrium. Its finally upon us. Thats going to happen when a stock takes out resistance overhead, okay . To examine a stock, they dont just look at the Closing Price and the graph of the closing days and weeks. Thats not helpful, because it doesnt yield a true picture of the stocks trajectory. They use what is called a moving average to better represent the action of a stocks movement. It takes the closing of a stock over a period of time, adding those up, dividing them by the days in the particular period. Im breaking it down. For example, you can measure a moving average over say a tenday period by adding up ten days worth of prices. Each day you add in the new close and drop off the earliest price. They use a longer term view. They select add 200 day average. If the stock had repeatedly b l bounced off, it kept failing, meaning it couldnt get through, failing to move up above t the 200day moving average. That created what looked to be a ceiling. See we had the ceiling, the 200day moving average. They felt every time it got there the stock was tapped. Then at last, at t cracked through the ceiling of resistance, and that was the 200day moving average. That was where it signaled a great move or investment. Every time it went above the old roof it would create the possibility of a new floor. It held this pattern. The stock didnt it didnt go back to where that climax low was. It held. Looking back at the beautiful bottoming that we see here with at t, it now seems like childs play, doesnt it . Yeah, of course its done going down. At the same time these technical analysts were saying the bottom was in and it was time to buy, the fundamental analysts were scared out of their wits. They were all scared to death right here. Some were even worrying about pension obligations that could cause the dividend to be slashed, something that was way, way wrong, but it scared the heck out of them. Remember how many people were in the stock for the dividend . That gave them a launching pad to blast off into a Straight Line into the 30s. So heres the bottom line. When you see this kind of reliable pattern as at t demonstrated, despite what the fundamental analysts may be saying you have to use the discipline that these technicians give you to pull the trigger and take advantage of a fabulous buying opportunity that might be overlooked after the market takes a real shellacking, never took it out. Way up. After the break, ill try to make you more money. Welcome back to our special technical show. The next crucial thing for technicians, whether a stock is overbought or oversold and maybe ready for a bounce. You determine whether a stock is overbought or oversold by charting the ratio of higher closes. The relative strength index is a momentum oscillator that measures the direction a stock is going and the velocity of the move. We like to match the strength of an individual stock to something else, perhaps to the sector or the larger index, and we measure the price action his tor cltorh. Perhaps the momentum switched that we wouldnt know if we had just read the research on the stock. I often turn to bob lion and tim cox. Many technicians vary the time. Theyre looking for any pattern that reverses the action of the previous period. Thats a sign that some break down may be upon us. They love strong relative strength situations, but they also like the time theyre buys after pull backs. Get that better entry point. They really care about bases. When a stock gets overbought, it is ripe for pull back. Many tend to snap back if theyve gotten too far away from the longerterm trend line. A stock can fall so far so fast that you can expect a snap back because its oversold. We see these patterns constantly. Theyre reliable indicators that a change in directions about to occur. If you are debating buying a stock after youve done all the research and you find a stock is overbought, i almost always tell you to wait for a pull back. The vast majority of stocks overshoot directions and retrace some of those moves back to better entry or exit points retracing isnt necessarily negative, charting, though, is tricky. Periodically, some stocks are so strong they break through all the ceilings of all traditional significant measuring periods and they stay overbought, perhaps for weeks at a time to find the historical trading patterns that have trapped them within the bands of extremes. They defy the gravitational pull and just cant be contained by any of the various ceilings that overbought conditions usually bump into. When you spot these highly unusual moves you may have to strap yourself in to get a real moon shot. This is rare, but when it happens, its big money. We saw it occur in july of 2009, as Dan Fitzpatrick pointed out to me, using an oscillator. This time in Las Vegas Sands. The summer the stock of the Las Vegas Sands, one of the most companies had been repeatedly stalled at the 10 level, falling every time it hit. Boom, boom, boom. You know. Just not workin, okay . But when the bulls finally broke out of the corral, there was no stopping them, and the stock gained the strength after it pushed through. Thats a very rare pattern. You see this thing . It stayed overbought, which told you, good things were going to be ahead. It never retreated, as you would have expected. Buyers wouldnt quit, despite the stock being overbought. And that is a sign, the strongest kind of positive move in the book might be taking place. At any other time i would expect a buyback, bup t no. It went from 10 to 48, pretty much in a Straight Line with no substantive pull back to speak of. An overbooked condition that can be im not too dependent on the pictorials, but what was happening underneath this chart that it was able to stay overbought for so long . Thats when the chief locust of profits for Las Vegas Sands went from being vegas to macau. The only place in china where gambling is legal. They might have been named macau sands. The charts told you about the transformation well ahead of the wall street journal. They werent talking about macau here. The chartists were thinking, there are buyers lurking. We often say that volume is a lie detector, telling us whether a move is for real or not, when there is a small move on light volume, technicians ignore it, but when there is a small move on heavy volume, the chartists drill down to see if its a precursor to something bigger. Charters are looking for accumulation or distribution. Thats a synonym for selling of a stock. They measure these moves by something call add accumulation distribution line. When the calculation of the accumulation distribution line is arcane, i care passionately about it. It can go against the grain of conventional thinking. Thats why i like charts so much. They go against the grain, and sometimes theyre right. We saw it right in monsanto in 2012. This was one i completely got wrong. Thank heavens for the chart. I didnt care for the stock. I didnt like gmos. I was kind of biased. Tim collins saw it another way. He showed the accumulation distribution line, on heavy volume on the up days. Thats a sure sign that more money was flowing into the stock than out of it. He noted a persistent pattern it convinced him that large funds were convincing to own the stock long term. It turns out what i didnt see, what i was so confused about was that monsantos stock had started to be correlated with the price of corn, which was going higher back then, because of newfound demand for ethanol. I was far too concerned about nearterm earnings and worries about a shortfall and wasnt thinking big picture, but the chart shows you big picture. The work of collins fold ytold t to fear, something bigger was developing. It turned out to be a big winner when corn shot up taking upon s monsantos earnings up with it. They were able to piggyback. And it showed the real value of the stock. I got smoked. He saw it. Bottom line, we need to look at lots of different indicators to spot big moves. Despite important turns that might not be visible otherwise. H