As the bank- and health-care-led market rally pushed the Dow Jones industrial average above the 26,000 level for the first time ever, CNBC’s Jim Cramer wanted to check in with tech.
“You always need to be thinking about when it might be time to do a little register-ringing,” the “Mad Money” host said. “I don’t want to scare you away from stocks. Just the opposite — like I said, I like stocks. But if you’re going to be a responsible investor, you need to be at least considerate of whether it’s a good idea to maybe be a little cautious.”
The stocks of Amazon, Alphabet, Netflix and Nvidia all made 52-week highs on Tuesday amid the surge, so Cramer enlisted technician Carolyn Boroden to determine if it was time for investors to take some profits off the table.
Boroden, the brain behind FibonacciQueen.com and Cramer’s colleague at RealMoney.com, said that with the four stocks nearing her price targets, now is the time to get careful.
“Boroden’s not saying these stocks have peaked, not by any means, but she does think it’s time to be a little more cautious,” Cramer said. “Is there anything wrong with that? I don’t think so.”
Boroden began with Amazon’s weekly chart. Being the “Fibonacci Queen,” she uses Fibonacci ratios — a series of number patterns discovered by medieval mathematician Leonardo Fibonacci — to find the levels where a stock is most likely to change its trajectory.
The stock of Amazon recently reached two key Fibonacci levels, which Boroden saw as a sign that it might pull back in the near future.
Beyond that, Amazon’s rally ending in October 2016 lasted for $373.21, exactly the same amount, to the cent, as the following upswing.
With Amazon hovering around $408 a share, this rally has been longer in the tooth. But because the October 2016 rally was followed by a $137 decline and the following rally by a $151 decline, Boroden had reason to suspect a pullback.
“Of course, she’s not saying these patterns will exactly repeat themselves, but Amazon has gotten extended here,” Cramer said. “It doesn’t take a genius to realize that a pullback conceivably could be in the offing. Throw in the fact that Amazon’s got a ceiling of resistance at $1,344 and you’ve got another reason, let’s say, to play it safe.”
Netflix’s stock also recently reached a Fibonacci price extension that tends to happen before a decline, Boroden said. Like Amazon, the stock’s daily chart shows it making a familiar run toward its ceiling of resistance.
“Most of Netflix’s recent runs have lasted for anywhere from 44 to 47 points,” Cramer said. “Given that the stock is now up 45 points in its current rally and is facing a tough ceiling of resistance in the mid-$220s, Boroden thinks this is another one where you might want to book a couple of profits ahead of a pullback.”
Alphabet’s stock looked overextended to Boroden, too. But she also became cautious after analyzing its daily chart’s Y-axis to find the dates when its trajectory could change.
Using her signature methodology, Boroden discovered a series of Fibonacci timing cycles that started last week and lasted through Wednesday.
“So if the stock’s going to take a break and pull back, there’s a very good chance it will happen pretty darned soon,” Cramer explained.
Finally, Boroden found the stock of Nvidia approaching a key Fibonacci extension level in its daily chart, similar to the others in its red-hot cohort.
Despite being bullish on Nvidia’s long-term prospects, Boroden noted the symmetry between the stock’s recent $45 rally and its last $48 run, suggesting that it might soon lose some steam.
“Now, Boroden’s not turning negative on these terrific stocks. She’s just saying, ‘Don’t abandon ship, but recognize there could be some choppy waters ahead,'” Cramer said. “Bottom line is that even the best stocks in the hottest of bull markets … need to take breathers every now and then when they’re snorting. And the charts, as interpreted by Carolyn Boroden, suggest that you might want to get more cautious [in the] short term with Amazon, with Alphabet, with Netflix and with Nvidia, because all four seem ready for temporary pullbacks. What can I say? You’re up huge if you own these. Would it really hurt you that badly if you took something off the table?”