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Jim Cramer: Charts Show S&P 500 Rising To 3,600 If It Clears A Key Hurdle

The S&P 500 may embark on another bullish run, should the broad index clear a key hurdle, CNBC’s Jim Cramer said Wednesday.

Cramer sees a scenario where the index rises nearly 7% from Wednesday’s close, which would carry the average to the 3,600 level in the distant future, based on chart analysis from Carley Garner, a commodities expert Cramer relies on.

“If we keep getting good news, Garner thinks the S&P could benefit from another short squeeze that would take us to new highs at around 3,400, which is up less than 1% from here,” the “Mad Money” host said. Garner is co-founder of DeCarley Trading and the author of “Higher Probability Commodity Trading.”

“We’re practically close enough to taste it. If we get to 3,400, then longer-term she believes 3,600 is in the cards,” Cramer added.

Cramer, looking at the daily chart of the E-mini S&P 500 futures, said Wall Street has now recovered its losses from when investors started taking the fast-spreading coronavirus seriously in late February.

The S&P 500, now trading at levels not seen since February, spent Wednesday’s session inching closer to record highs. Its 3,380.35 finish is the second-highest close in the index’s history.

A new high would mark the index’s rebound from the major market meltdown triggered by coronavirus fears earlier this year. The index fell 35% peak to trough in just over one month.

Should the market cross the February top, it would be the second of the three major U.S. averages to make a full recovery from the February-March collapse. The Nasdaq Composite has been putting in new closing highs since late June. The 30-stock Dow is within 1,600 points of its record high.

If the S&P 500 crosses the 3,400 mark, about 20 points from Wednesday’s end, the event could usher in a round of selling that could bring the benchmark back down to 3,100.

Institutional investors, according to the Commodity Futures Trading Commission’s weekly traders report, are bearish about the future, Cramer said. Big funds have big positions in the 10-year Treasury note and a comparably large short interest in the S&P 500, he said. The long-term note is near overbought territory, based on the Relative Strength Indicator, or RSI, momentum indicator mapped out in the chart below.

“Even if there’s a pullback [in the S&P], Garner doesn’t think the bears can win right now, if only because there are just too darned many of them,” Cramer said. “We have lots of short sellers who get squeezed every time something good happens, like today, and until the shorts collectively give up the ghost, their pain is your gain.”

The RSI and the Williams Percent Range, another momentum indicator, in the S&P 500 are signaling that the market is overbought and likely headed for a pullback. The uptrend should remain intact afterward, Cramer said.

“Garner believes it’s foolhardy to be aggressively bullish right here, at least for short term,” he said. “In Garner’s view, the uptrend, though, is not in danger. You might get some sort of nasty short-term sell-off like we had in June ... and that means any sell-off is going to be used to buy.”

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