In an emotional market where investors struggle to process the White House newsflow, CNBC’s Jim Cramer likes to fall back on the technicals to find actionable opportunities.
“In the stock market, emotional decisions tend to be bad decisions,” the “Mad Money” host warned. “So we need to do everything we can to check our emotions at the door. And that’s why, every week, we like to play off the charts.”
For Wednesday’s charts, Cramer turned to technician Marc Chaikin, the founder and CEO of Chaikin Analytics and the inventor of key technical tools like the accumulation-distribution line, the Chaikin volume indicator, the Chaikin oscillator and the Chaikin Money Flow.
Three weeks ago, Chaikin recommended three stocks on “Mad Money” based on his formula for finding winners and losers: Marathon Petroleum, EOG Resources and General Electric.
Since then, Marathon and EOG have gained 8.2 percent and 4.6 percent, respectively, and GE was up 9 percent as of Tuesday before its CEO gave a poorly received presentation.
“Two out of three ain’t bad, and if you’d taken profits on GE yesterday, you would’ve had a phenomenal trade,” Cramer said.
Chaikin’s formula uses three key indicators: the Chaikin Money Flow, which measures buying and selling pressure in a stock; the Chaikin Relative Strength, which compares a stock’s performance with the S&P 500’s over the last six months; and the Chaikin Power Gauge, which uses 20 different fundamental and technical inputs to produce a bearish or bullish reading.
This time around, Chaikin’s formula flashed particularly bullish signals with the daily stock chart of Akamai Technologies, a cloud play that helps companies get content like streamed video online securely and glitch-free.
Shares of Akamai have been soaring since activist fund Elliott Management said it took a 6.5 percent stake in the company last December, but Chaikin’s three indicators showed more room to run.
The Chaikin Money Flow turned positive, meaning that institutional investors were buying the stock, the Chaikin Relative Strength has been strong for months, and the Chaikin Power Gauge is sending green bullish signals.
Still, the technician warned that the stock is very overbought, suggesting that investors wait for a pullback to the $72 to $74 level before picking up some shares.
“My view? I like Akamai here — we recommended it at $73 in mid-March — but I’d like it even more into weakness because I believe in Elliott Management’s ability to take this business to the next level,” Cramer said.
Chaikin’s formula can also signal when a stock should be sold. On Wednesday, Chaikin zoomed in on the stock of Walmart, down over 4 percent since the company’s earnings report.
Having spent months in the red, the Chaikin Money Flow inched up after the report, but is still flat, Cramer said. The Chaikin Relative Strength indicator is also negative, reinforcing the stock’s decline. Unsurprisingly, the Chaikin Power Gauge is flashing bearish signs, too, he added.
“My view? I like Walmart long term, but Chaikin may be right about the short term,” Cramer said. “Wall Street really dislikes the fact that the company’s spending so much money to grow its business, including that acquisition of Flipkart, the Indian e-commerce play. I think these bets are ultimately going to pay off, but it could take time.”
“Bottom line? The charts, as interpreted by Mark Chaikin, suggest that you should buy Akamai here and sell Walmart,” the “Mad Money” host concluded. “Given his track record, I think you need to take his advice very seriously, especially on the stock of Akamai.”