CNBC’s Jim Cramer said Wednesday that the market is set to go lower and higher again by Monday, relying on analysis by Option Pit founder and volatility expert Mark Sebastian.
“The charts as interpreted by Mark Sebastian say that we are currently in the middle of a rapid rise in short-term volatility, and once we are done, we will be back in a post-March bottom environment where stocks could easily rally,” themad money‘ said the host.
Cramer first explained the relationship between the S&P 500 and the CBOE Volatility Index, also known as the Fear Scale.
“Because the volatility index reflects fear, it is normal for the S&P to move in opposite directions,” Kramer said, adding that this is what happened on Wednesday. “When they move in the same direction, you have to start asking questions about the sustainability of the market’s trajectory.”
The Dow Jones Industrial Average fell 0.42%. Wednesday While the S&P 500 fell 0.97%. The Nasdaq Composite is down 2.22%.
At the start of 2022, the S&P was down while the VIX was up almost straight, Cramer said, adding that the VIX hadn’t come out of its previous lows even as the S&P rose temporarily.
“From there, the volatility index has been far from racing. While the S&P recovered in the last week of January, it made a comeback in February. More important, from Sebastian’s perspective, is the fact that VIX confirmed this negativity. With each new S&P dip. VIX rose, just as it should,” Kramer said.
In contrast, Sebastian noted that on March 14, the S&P was incredibly close to its previous low from March 8, but the VIX rose to much lower levels on the 14th than it did on the eighth, Cramer said. He added that this means less fear of investors.
Cramer said that when examining what the charts are showing about the market recently, Sebastian believes there is “more room to go up”. Cramer explained how recent movements in the S&P 500 and VIX support Sebastian’s view.
“The S&P 500’s most recent high was 4,631 again on March 29. At that time, VIX closed at 18.90. While the S&P failed to touch the same level on Monday’s highs, note that the VIX made a lower level there…” he said. Cramer said the level he hit was 18.57, in other words, the market went down, but the VIX went down too.”
“This means that despite the action today, the fear continues to subside,” he added.
Sebastian believes the market will start to rise again by Monday, although the S&P likely won’t reach new incredibly high levels, Cramer said.
“In his view, we’re in the midst of a rapid two-to-three-day spike in VIX…This kind of movement is incredibly fast, but it tends to be short-lived,” Kramer said. “He thinks [the S&P] We could see 4700 again sometime, maybe before Easter.”
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