All about a company for fear it would bias them against the stocks chart. Now, i have become pretty proficient at charting over the years but i rely on the work of professionals to learn techniques that i can in turn teach you. Thats why tonight i am picking the best of the best charts of some of the best technicians we have worked with exploring the patterns that become reliable to the point where im pretty astonished at how accurate they can be. I guess you have to call me a longterm believer. Thats why i have started nearly every saturday morning for the last 30 years reading the standard and poors trend line daily action stock charts formerly on paper now on Electronics Distribution and they contain hundreds of charts, i match those charts with the patterns i have learned over time. All the Research Available for the most winning charts and they become segments on the show you see later in the week. Why do the charts work . People always want to know. First, you must consider them as if they are footprints at the scene of a crime. Big Money Managers might be doing with their buying and selling of dollars. These portfolio at large funds often know more than others including you and me. The charts of where their money goes, the charts of the stocks, put together clues that these big boys leave. Second reason to care, there is a remarkable selffulfilling nature of charting stocks. So many professionals look at these drawings and take them to heart that they will simply avoid stocks with predictably terrible charts and find stocks to own stocks that have had positive moves in the past. When i worked with karen cramer she is a veteran chartist at my old hedge funds she would look at the charts each morning seeking one that stood out as potential break outs and break downs and had she research the ones with the most predictable patterns to get a handle of what might be going on. We got some of our best ideas from some of those brainstorming sessions. Longterm results. All of charting Technical Analysis starts not just with the pictures of individual stocks but also what are known as the internals. Internals. Patterns about stocks in the aggregate that give you clues to the direction of the entire stock market. For years ever since the Great Recession that showed the inherent weakness in our financial system, systemic risk, there has been tremendous skepticism about any advance of stocks. While the systemic risks have been reduced i know each rally creates a worrisome set of risks. Many of you fear you are coming in at a level that cobble too late, too high and you will lose money either way. Sell. Sell. Sell. Could Technical Analysis includes indicators to help you determine the overall direction of the market. Sometimes technicians everything hinges on putting together the and the charts of the bigger averages to create comp sons that elucidate and illuminate conclusions about true market strength. They are 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 confirmation, lets say the dow jones average hits a new high, historically that high will not be sustainable unless the dow jones transportation index also hits a high or confirms the breakout status of the dow itself. The dow jones transportation index is a measure of commerce, tracking trains, planes, trucks, freight forwarding, come on, thats really isnt that a good gauge, both the industrials and transports 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 the founder and first editor of the wall street journal who created the dow theory to validate rallies or you often hear that i like how the transports with acting thats because im trying to see if the move has staying power. I look at the banking index, the housing index, i look at the semiconductor index, and the r it. H, thats that all important etf that encompasses the big retailers. I like to see all these indices move up in synch before i bless a market move for you. You get all these indices rolling higher 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 indices the whole rally could be a fake out and cant be trusted. The classic example, if you go back to the move up to record highs before the Great Recession, you will notice something pretty incredible if you go back and study it. You will notice that there was almost no participation among the financials, the retailers or the techs. Technical analysis got you out late if you followed those indicators, did much better than the fundamentals. What are the other internals i look at . I analyze the advances in declines, gure out whether the rally is too concentrated. I look a market with good breadth with a lot of participation by different groups. I look at the new high and low ratio. It isnt easy to get on that new high list. The sector has not to be strong, third, Larger Forces the federal reserve, interest rates, politics, have to be aligned to make some stocks successful enough to get on that new list. That high list is is rarified territory. You run the gauntlet you have a good stock, a stock i probably want to buy when i need market pull back. And there are a lot of stocks on the new high list thats actually a terrific sign. So here is the bottom line, you may not be a technician but you need to know what the charts are saying and you need to know how to read the internals to verify a real move or a phoney one. Whole lost of predicted patterns that diffuse pretty much everything we do around here, not just on the off the charts tuesday, but in Stock Selection every single day. Jim in michigan. Jim. Caller jim, hi. How are you . Thanks for taking my call. Of course. Thrilled that you called. Whats up . Caller i got a question for you. In the segment you were talking about secular stocks. Could you define for me once again, what a secular stock is and maybe give an example or two. Certainly. Look, this is a very importata issue because its a term that gets thrown around, people say secular and parochial. A secular growth something is something that does not need the Gross Domestic Product to increase in order for it to be able 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 booyah. Caller gary from california. My question is regarding dividends in a down market, sir. If youre accumulating dividends on a number of stocks as you suggest is it better to reinve them in a down market or to take the money as cash and then possibly reinvest that in other opportunities . Well, you see, 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 near term consequences because im thinking longterm for you. Fundamentals, oh, theyre key, but technicalities matter, too. Tonight im bringing you into the world of mastermind chartists so you can learn to see the whole picture behind a stocks moves. We know the chart is and ceilings . Then how can you tell if a company is overbought or oversold. And mixing patterns isnt only for fashion, im highlighting the patterns worth banking on when it comes to investing. So why dont you stick with cramer. Announcer dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, madtweets. Send jim an email to madmoney cnbc. Com or give us a call at 1800743cnbc. Head to madmoney. Cnbc. Com. So how ya doing . Enough pressure in here for ya . Ugh. My sinuses are killing me. Yeah. Just wait til we hit ten thousand feet. Im gonna take Mucinex Sinusmax. Too late, were about to take off. These dissolve fast. Theyre new liquid gels. And youre coming with me. Wait, what . you realize i have gold status . Do i still get the miles . New Mucinex Sinusmax liquid gels. 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Peptocopter when cold cuts give your belly thunder, pink relief is the first responder, so you can be a business boy wonder fix stomach trouble fast with pepto. Best of the best of Technical Analysis, a onestop shop of everything you need to know to augment of your investing with the help of the best chartists in the land. Lets look at something, spotting bottoms for best entry points and examining ceilings for the best places to exit or sell. When you pick individual stocks you are betting from the moment you buy them that they are going to go higher. I know its a Pretty Simple concept but how often do you do solid fundamental work on a company and try to figure out if its the right decision to pull the trigger because your homework is finished . And then, well, its a terrible time and youre buying oblivious to the stock. My homework is done, lets go buy. Maybe its not the right moment. After all the works ive done on the off the chart segments i say youre being short sighted if you dont look at how the stock has done technically after youve done the homework. I consider looking at the chart the homework. Get that in your head. Get it engrained into your thinking. Sometimes after finding bottoms can be lucrative. A good example, lets s back to the bottom of 2009. I had a sense that declines velocity was lessening, i had heard haines make his haines call based on his feeling. I know that doug that writes with me sometimes noted 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. I was loloing for a situation that seemed 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 way back machine, it included a smashing rollout of the apple iphone which was going to outsized dividend, 6. 2 , the yield was much higher than any stock in the dow, the dividend was safely backed by the humongous cash flow. Still the stock kept plunging every time i thought it ha solid footing. I waited for a few days when the stock seemed to stabilize and decided that the level might be right and the stock could hold. Its best to check with a chartist so i did it. I actually brought in four chartists. Amazingly they all agreed that it had found a Strong Foundation and was worth considering for a sound investment. Take a look at this chart. First all four technicians agree that att had established what is known as a climax low at 21 back in the tsunami of selling that was this period. Okay. You just have to understand that we are just at one of these moments that was just so hideous. You can see the big lift in stock and then well, lets give away the story. Thats where lots of sellers had capitulated, they capitulated right here, but buyers had started to step up to create a base. Okay . See the extended base. Or floor the stock at that level. They arrived at that judgment by oking at where the volume, the susuof all the transactions during that period had expanded to a level far in excess of a normal periods trading. You can see there is a normal period trading and then, boom, take a look at that. Thats a sign that the sellers had exhausted themselves, the volume levels showed most of the big Portfolio Managers wanted out of the stock they had fled it by now. At the same time buyers step up to meet the e pply with a concomitant level of demand. Unless you got the climax there were so many more sellers and yers at each level that they knocked the stock down. No base cacaform. Bad time to buy. A climax is a sign that those potential sellers who have been holding on for some time are big give up. Remember, technicians dont care where that might be the case they are just monitoring price and volume. When they see volume gets larger, expands but the stock doesnt go down that means at last the stock has found its floor so its time to buy. Its safe. Thats where the buyers are equal to the sellers in their power to determine the direction of the stock and thatta form equilibrium. Its finally upon us. Okay. Thats the base. Thats where the buyers are equal to the sellers in their power to determine the direction of the stock and thats a form of equilibrium. Its finally upon us. Okay. Thats the base. Thats going to happen when the stock takes out resistance over head. To examine the possibilities of a stock the technicians dont just look at the csing price and the graph that price against the previous days or weeks close, they dont just look and say that looks good, that looks bad. Thats not helpful because it doesnt yield a true picture. Instead technicians use what is known as a moving average to better represent the stocks price. It is taking the closing prices of the stock and adding those prices up and dividing the prices by the days in a im breaking it down. For example, you can measure a moving average over a tenday period by adding up ten n ys worth of closing prices and dividing the sum by 10, plotting the number on a graph. Each subsequent day you add in the close. The four technicians i checked in with for att they all chose to use a long err term, they selected a 200 day moving average. Att had found a floor at the 21 level, that the stock had repeatedly bounced off of, it kept failing, meaning couldnt get through, failing to move up above the 200day moving average. E data plotted it, they all had done the same amount of work and that created what looked to be a ceiling. So we had the ceiling, the 200day moving average, theres nothing you could do. They felt every time it got there the stock was capped. Then at last att cracked through the ceiling of resistance and average, that was the signal that at least att could generatete a great trade or an investment. The old roof became a new floor. Here is your floor the 200 day. Every time the moving average went above the old roof it would create the possibility of a new floor. This pattern emboldens buyers as they recognize the stock didnt break that new found base and bounced off of it. It didnt go back to where that climax low was. It held. Looking back at the beautiful bottoming that we see here with att, it now seems like childs play, doesnt it . Of course the stock is going down yet at that moment it was anything but easy because at the same time these technical analysts were saying the bottom is 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 me, remember how many people are in this stock for the dividend . Stock is launching pad to blast off in an almost Straight Line into the 30s, one of the biggest gains a safe stock could ever give you. When you see this reliable pattern, despite what the fundamental analysts might be saying you have to use the discipline that these technicians give to you pull the trigger and take advantage of a fabulous buying opportunity that might otherwise be overlooked after the market takes a real shellacking. Never took it out. Way up. Make so how ya doing . Enough pressure in hererfor ya . Ugh. My sinuses are killing me. Yeah. Just wait til we hit ten thousand feet. Im gonna take Mucinex Sinusmax. Too late, were about to take off. These e ssolve fast. Theyre new liquid gels. And youre coming with me. Wait, what . you realize i have gold status . Do i still get the miles . New Mucinex Sinusmax liquid gels. Dissolves fast to unleash max strength medicine. Start the relief. Ditch the misery. Lets end this. Ive got two reaeans to take care of my heart. Thats why i take meta. Meta is clinically proven to help lower cholesterol. Try meta today. And for a tasty heart healthy snack, when heartburn hits fight back fast tums smoothies starts dissolving the instant it touches your t tgue d neutralizes stomach acid at the sououe tum, tum, tum, tum welcome back to our technical show. Whether a stock is overbought and therefore ripe for a pull back or oversold maybe ready for a bounce. You determine whether a stock is overbought or oversold by closes also known as the relative strength index. Ththrelevant strength ininx is the momentum os later that measures the measure the stock is going. Maybe that of a larger index and we measure the price action historically. Were always looking for anomalies where strength stands out because thats the sign of a pending move. Perhaps a a mentum switch that th he wouldnt know if we read the research on the stock. I often turn to bob lang and tim collins. Many technicians vary the length of time over which they measure relevant strength, but Brian Collins like to use ten days, two weeks to get a bead on the relevant strength of the stocks theyre looking at. Theyeye looking for any pattern that reverses the action of the previous period thats the sign that a breakout might be upon us. They love strong relative strength situations but they also like to time their buys better entry point. They care about bases. Typically when a stock gets overbought it is ripe for a pupu back because overbought stocks, ones with many buyers, tend to snap back after theyve gotten too far