>> dan. xrt. i like the direction. >> looks like our time has expired. thank you so much for watching. check us out next week on friday for more options action. have a great labor day weepd. "mad money" starts now. my mission is simple, so make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now! hey, i'm cramer! welcome to cramerica. other people want to make friends, i just want to make you some money. call me at 1-800-743-cnbc or tweet me @jimcramer. close watchers of "mad money" know i'm not a chartist, but i do play one on tv weekly, showing you patterns that can predict the next big move for stocks.
given that almost all my work, it is heretical and antithetical. not for a minute, as i explain in "get rich carefully", have i become a chartist myself. i describe the sectors, and overlay them on my broader world view at this moment. charters could care less about this stuff. i wonder if they could do their jobs without the companies' names blacked out. some of them hate the distraction of knowing about the company. now i've become pretty proficient at charting over the years, but i still rely on the
individual work of professional technicians to demonstrate how to use charting and to demonstrate techniques that i can teach you. that is why i am picking the best of the charts of some of the best technicians we have worked with, to the point where i'm astonished at how accurate they can be. so i guess you have to call me a long-term believer. i have started nearly every saturday morning using the standard and poor's charts, for formerly on paper, now in electronic distribution. i then go over the research available for the most winning charts many. and they also become segments for the shows that you see later in the week. why do the charts work? first you must consider them as if they are footprints at the scene of a crime. they trace out what big money managers might be doing with their buying and selling of dollars. these portfolios say that they
oof often know more than you and me. it puts together clues that these big boys leave. there's a remarkable self-fulfilling nature of charting stocks. so many take them to heart that they will avoid stocks with predictably terrible charts and go with stock that have positive moves no the past. don't i know it. they'd have me research the ones with most predictable patterns to get a handle on what might really be going on. we got some of our best ideas from those brainstorming charting sessions, to produce excellent short and long-term results. all of charting and technical analysis starts not just with the pictures of individual stocks but also what are known
as the internals, internals. patterns that give you clues of the direction of the whole stock market. for years since the great depression, there has been tremendous skepticism about any advance of stocks. well, i brielieve the systemic risks have decreased, you will lose money either way. for technical analysis helps you determine the overall movement of the market. sometimes technicians, everything hinges on putting together the charts of individual companies and the charts of the bigger averages to create comparisons that elucidate about true market
strength. they're 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, let's say the dow jones hits a new high. it will not be sustainable unless the dow jones transportation index hits a high or confirms the breakout status of the dow itself. it traction planes, trains, freight, isn't that a good gauge? if the industrials and transportation 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 who created the dow theory. you hear at the top of the show that i love how the transparts are acting, i look at a host of
other sectors, the banking, the housing, the semi-conductors and the rth, that all important etf that encompasses the big retailers. i like to see them all move up in synch before i bless a market for you. 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 indeces, the whole rally could be a fakeout and can't be trusted. the classic example. if you go back to the move up to record highs before the great recession, you won't notice something pretty incredible. you will notice that there was almost no participation among the financials, the retailers or the techs. technical analysis got you out of that market before it was too late if you followed those indicators. did much better than the
fundamentals. what else do i look at? i determine if the concentrated. i like a lot of breadth. first a company must be doing exceptionally well. en third, larger things like the federal reserve have to be successive. you run the gauntlet, you have a good stock. a stock i want to buy on any pull back. and if there are a lot of stocks in the new high list for many different industries, that's actually a terrific sign. so here's the bottom line, you may not be a technician, but you need to know what the charts are saying and how to read the internals to verify a real move or a phony one. stay tuned and we'll go over a whole host of patterns that predicts pretty much everything
we do, but on stock selection every single day. jim in michigan. >> caller: thanks for taking my call. >> thrilled that you called. what's up? >> caller: i've got a question for you. in the segment, you were talking about secular stocks. could you define for me once again, what are secular stocks and maybe give me an example or two. >> certainly, this is an important issue, it's a term that gets thrown around. sec har means a secular growth stock is something that does not need the gross domestic product of the world to increase 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, boo-yah to you. my question to you is regarding dividends in a down market, sir.
if you're accumulating difficult demds -- dividends, is it better to reinvest them or take the money as cash and possibly reinvest that in other opportunities? >> we don't know when a down phase is going to end, and we know the power of compounding is an amazing thing, so we're going to stick, always on this show, i know it sounds pretty pedestrian, but we're always going to opt in favor of reinvesting, because fortunes have been made through the power of compounding. i've got to go with that, regardless of the near-term consequences, because i'm thinking long-term for you. fundamentals? oh, they're key, but technicals matter, too, tonight i'm bringing you into the mind of mastermind charters so you can see the whole pictures. on "mad money" tonight, we know charting is important, but what technical tool can help you detect floors and ceilings? how can you tell if a company is
overboug overbought? why don't you stick with cramer! don't miss a second of "mad money." follow @jimcramer on twitter, tweet cramer, #madtweets. send jim an e-mail at "mad money".cnbc.com. or give him a call, 1-800-743-cnbc miss something? head to madmoney.cnbc.com. what's better than "mad money"? how about more "mad money." follow on facebook, twitter and instagram to go one on one with cramer. >> what other questions do we have? i always tell people we need to start requewith an index fund. >> go behind the scenes with the most interactive show on
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tonight we are offering the best of the best of technical analysis, a one stop shop of everything you need to know about charting. spotting bottoms for best entry points and examining ceilings for the best places to exit or sell. when you pick individual stock, you are betting from the moment you buy them that they're going to go higher, i fknow, pretty simple concept, but how often do you do solid work on a company to decide if it's the right time to pull the trigger, because your homework is finished, and you're buying oblivious to the stock. maybe it's not the right moment. i now say you're being short-sighted if you don't check out how the stock looks.
it's not just the right time since you have done the homework. i would recommend looking at the stock as part of the homework. get it in your head, get it ingrained in your thinking. sometimes finding bottoms after lucrative declines -- i heard the haynes bottom call based on the innate feeling. i know my friend doug cast, that's part of the street.com family, sometimes known 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. so i was looking for a situation about 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, but it included a smashing rollout of the apple iphone, which had
record profits. had an outsized dividend, the yield was just about higher than any stock in the dow. the stock kept plunging every time i thought it might have firm footing. in other words i did my research, thought it was time to buy. no. no. check the chart. i waited. i waited for a few days when the stock seemed to stabilized and decided at last that it might be time to hold. it's best to check with the chartisti chartists, so i did. i actually put in four, four chartists. it was definitely worth considering for an investment. they didn't care at all about the fundamentals. take a look at this chart. first, all four technicians agree thad at&t had established what is known as a climax low at at 21, back at the tsunami of selling. we have to understand we were at one of these moments that was so hideous.
you see the big lift, big lift in stock. i don't want to give away the story. that's where lots of sellers had capitulated, right here. but buyers had started to step up to create a base, okay? see the extended base? or floor at the stock at that level. then look at the volume and all the sum of the transactions of that period. that's a sign that the sellers had exhausted themselves. most of the big portfolio owners who flooded the stock had fled it by now. think about it like this. until you got the climax, there were so many morse sellers than buyers. as long as sellers overwhelm buyers with their dumping, no base can develop.
big give up. remember, technicians don't care why that might be the case. they're just monitoring price and volume. when they see price gets larger or expands, that means the stock has found its floor, it's time to buy. it's safe. that's where the buyers are at last equal to the sellers. and that's a form of equilibrium. it's finally upon us. that's going to happen when a stock takes out resistance overhead, okay? to examine a stock, they don't just look at the closing price and the graph of the closing days and weeks. that's not helpful, because it doesn't yield a true picture of the stock's trajectory. they use what is called a moving average to better represent the action of a stock's movement. it takes the closing of a stock over a period of time, adding
those up, dividing them by the days in the particular period. i'm breaking it down. for example, you can measure a moving average over say a ten-day period by adding up ten days worth of prices. each day you add in the new close and drop off the earliest price. they use a longer term view. they select add 200 day average. if the stock had repeatedly b l bounced off, it kept failing, meaning it couldn't get through, failing to move up above t the 200-day moving average. that created what looked to be a ceiling. see we had the ceiling, the 200-day moving average. they felt every time it got there the stock was tapped.
then at last, at&t cracked through the ceiling of resistance, and that was the 200-day moving average. that was where it signaled a great move or investment. every time it went above the old roof it would create the possibility of a new floor. it held this pattern. the stock didn't -- it didn't go back to where that climax low was. it held. looking back at the beautiful bottoming that we see here with at&t, it now seems like child's play, doesn't it? yeah, of course it's done going down. at the same time these technical analysts were saying the bottom was 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 them. remember how many people were in the stock for the dividend? that gave them a launching pad to blast off into a straight line into the 30s. so here's the bottom line. when you see this kind of reliable pattern as at&t demonstrated, despite what the fundamental analysts may be saying you have to use the discipline that these technicians give you to pull the trigger and take advantage of a fabulous buying opportunity that might be overlooked after the market takes a real shellacking, never took it out. way up. after the break, i'll try to make you more money.
welcome back to our special technical show. the next crucial thing for technicians, whether a stock is overbought or oversold and maybe ready for a bounce. you determine whether a stock is overbought or oversold by charting the ratio of higher closes. the relative strength index is a momentum oscillator that measures the direction a stock is going and the velocity of the move. we like to match the strength of an individual stock to something else, perhaps to the sector or the larger index, and we measure the price action his tor cltorh. perhaps the momentum switched
that we wouldn't know if we had just read the research on the stock. i often turn to bob lion and tim cox. many technicians vary the time. they're looking for any pattern that reverses the action of the previous period. that's a sign that some break down may be upon us. they love strong relative strength situations, but they also like the time they're buys after pull backs. get that better entry point. they really care about bases. when a stock gets overbought, it is ripe for pull back. many tend to snap back if they've gotten too far away from the longer-term trend line. a stock can fall so far so fast that you can expect a snap back because it's oversold.
we see these patterns constantly. they're reliable indicators that a change in direction's about to occur. if you are debating buying a stock after you've done all the research and you find a stock is overbought, i almost always tell you to wait for a pull back. the vast majority of stocks overshoot directions and retrace some of those moves back to better entry or exit points retracing isn't necessarily negative, charting, though, is tricky. periodically, some stocks are so strong they break through all the ceilings of all traditional significant measuring periods and they stay overbought, perhaps for weeks at a time to find the historical trading patterns that have trapped them within the bands of extremes. they defy the gravitational pull and just can't be contained by any of the various ceilings that overbought conditions usually bump into. when you spot these highly unusual moves you may have to
strap yourself in to get a real moon shot. this is rare, but when it happens, it's big money. we saw it occur in july of 2009, as dan fitzpatrick pointed out to me, using an oscillator. this time in las vegas sands. the summer the stock of the las vegas sands, one of the most companies had been repeatedly stalled at the $10 level, falling every time it hit. boom, boom, boom. you know. just not workin', okay? but when the bulls finally broke out of the corral, there was no stopping them, and the stock gained the strength after it pushed through. that's a very rare pattern. you see this thing? it stayed overbought, which told you, good things were going to be ahead. it never retreated, as you would have expected. buyers wouldn't quit, despite the stock being overbought. and that is a sign, the
strongest kind of positive move in the book might be taking place. at any other time i would expect a buyback, bup t no. it went from $10 to $48, pretty much in a straight line with no substantive pull back to speak of. an overbooked condition that can be -- i'm not too dependent on the pictorials, but what was happening underneath this chart that it was able to stay overbought for so long? that's when the chief locust of profits for las vegas sands went from being vegas to macau. the only place in china where gambling is legal. they might have been named macau sands. the charts told you about the transformation well ahead of the wall street journal. they weren't talking about macau
here. the chartists were thinking, there are buyers lurking. we often say that volume is a lie detector, telling us whether a move is for real or not, when there is a small move on light volume, technicians ignore it, but when there is a small move on heavy volume, the chartists drill down to see if it's a precursor to something bigger. charters are looking for accumulation or distribution. that's a synonym for selling of a stock. they measure these moves by something call add accumulation distribution line. when the calculation of the accumulation distribution line is arcane, i care passionately about it. it can go against the grain of conventional thinking.
that's why i like charts so much. they go against the grain, and sometimes they're right. we saw it right in monsanto in 2012. this was one i completely got wrong. thank heavens for the chart. i didn't care for the stock. i didn't like gmos. i was kind of biased. tim collins saw it another way. he showed the accumulation distribution line, on heavy volume on the up days. that's a sure sign that more money was flowing into the stock than out of it. he noted a persistent pattern it convinced him that large funds were convincing to own the stock long term. it turns out what i didn't see, what i was so confused about was that monsanto's stock had started to be correlated with the price of corn, which was going higher back then, because
of newfound demand for ethanol. i was far too concerned about near-term earnings and worries about a shortfall and wasn't thinking big picture, but the chart shows you big picture. the work of collins fold ytold t to fear, something bigger was developing. it turned out to be a big winner when corn shot up taking upon s -- monsanto's earnings up with it. they were able to piggyback. and it showed the real value of the stock. i got smoked. he saw it. bottom line, we need to look at lots of different indicators to spot big moves. despite important turns that might not be visible otherwise. however, it can elude those who
are focussed on the underlying companies and not the action of the stocks themselves. let's go to dan in illinois. >> caller: thank you for demystifying the market and helping us make it accessible. >> that's what i want. i want everybody to understand their money. that's my goal. how can i help? >> caller: thank you. i'm wondering if i start with a small position in a stock, a company i like, and the stock just keeps going up, the most it comes down is maybe two, 2.5%, how can i get a more sizable stake? >> my discipline says you missed it. my discipline will cut off the down side which is far more important than cutting off the upside, if you bought a position in a stock and it kept going higher and you didn't get anymore, it's a trade and you got to take it. when you violate your basis and pay up, i can show you for years and years and years from my charitable trust, i have done the work. it is almost always a mistake.
chartists use all different types of indicators to spot big moves. now you're ahead too, much more "mad money" ahead. head and shoulders isn't only for preventing dandruff. i can show you how to make money. you're not requegoing to want ts my take. i'm taking your tweets. go ahead and tweet m me @jimcramer #mad tweets. stay with cramer. welcome to opportunity's knocking, where self-proclaimed financial superstars pitch you investment opportunities. i've got a fantastic deal for you- gold! with the right pool of investors, there's a lot of money to be made. but first, investors must ask the right questions and use the smartcheck challenge to make the right decisions.
believe' learned a lot tonight about the key terms of technical analysis. now let's look at some of the individual charts that many of you find fascinating even as some of the patterns, they almost sound silly as if they're mimicking letters, geometric shapes or even body parts. i learned not to ignore one of them, the dreaded head and shoulders pattern! my charitable trust bought alcoa and took a giant bath in red ink
because of the ill-informed or should i say early buy? i like to do mea culpas in the show. i like to show you what works and what doesn't. something to solidify when it announced it split into two separate companies. take a look at alcoa. it enjoyed a healthy run for the winter of 2010 right up until february of 2011, rising from $13, nice rise, right? up to $17. not long after the stock hit 17 dollars, it took a quick dive down to $15, no reason i could discern, then it reversed and went up to $17 and then up to $18 on the eve of the quarterly report. i thought the quarter was a fine one. most of the time, that's all you can ask for. what worried me though, was
after an initial positive reaction, the stock dropped down to $16, $16 and change. a few weeks later, there we go, it's back to $17, and i felt almost vindicated. so i went and bought more. i went and bought more right there. could i have been more wrong? i don't think so. because that $17-15 dive represented on the chart as point a and b then followed the run to c, 18, back to 16, d, finally, 17, e, you know what that is? that's a perfect head and shoulders pattern. yeah, just like a human's head. that is it. that is the most brighteni frig pattern in the chart book. what was happening? europe and china began their slow down.
aluminum came into glut. he can control his own company, but not the price of the commodity itself. it still is aluminum. over the course of the next few years, it rallied well off its lows after a completion of the brutal head and shoulders pattern, remember, again, mea culpa. one of the things i admire about technicians is their intellectual. at the end of 2013 a lot of people thought the economy was taking off, and people were running from the food and drug stocks and running toward the s cyclicals, the caterpillars. you want to take a hard look at pfizer, i was told, because it
was going out of a head and shoulders pattern. it would be the kind of company i would shun, i would normally never touch this thing when the economy's speeding up. but if you take a look at the chart, you see a left shoulder and started declining aggressively, okay, in november. the stock bottomed to form a head, then caught a rally and a pull back to create the right shoulder. the key with this pattern is the neckline. the line that connects the head to the two shoulders. when a stock breaks out above that line, it tells the technician you are about to have a big, big, big move. pfizers line was $25.80. it could be in for a monster run, giving that money was pouring out with the staples. i didn't trust it one bit. i'm like king of rotations.
i knew it was a bad stock. but collin said rotations smotations. it was inconceivable. sure enough, he was right, i was wrong. it almost instantly jumped 10% after i was told to buy it with both hands. the huge drug company decided to spin off its animal health division. it was a shocker, into a new and publicly traded company called zoetis. who knew? the chart did. patterns matter. when you sigh head and shoulders pattern, don't take any chances, sell, sell, sell, at least some of it, please. and when you see a reverse head and shoulders developing, even if it makes no sense, you have to consider buying some! that's how powerful these moves are, and the chart work on these two patterns has vindicated far
more often than the skeptics would ever think possible. stay with cramer! mr. cramer, absolutely love the show. boo-yah. >> learning so much from you. boo-yah, mr. cramer. >> i know you hear this all the time, jim, but thank you, thank you, thank you so much. >> this has been my best year by far and a way in the market. >> i want to thank you for looking out for the regular guys out there. >> i am trying to teach people to be better investors, and i am doing my darn best. that's the goal here. >> great to hear your voice and know that you're here for us. what if a company that dn't ma cars made plastics th make them lighter? whathe bricts that improved fueeconomy.
we run the gamut of technical training on the show, including the head and shoulders and reverse head and shoulders that show big up and down moves. but those aren't the only patterns we can rely on to tell us the truth when the fundamentals give us little insight in the direction of stocks. one thing we've come to love is the cup and handle pattern. it's been so reliable, and i've used it to keep myself in stocks
i otherwise might have been turned off on or shaken out by. take cramer fave domino's. we got in at under $10. and we were feeling pretty darn greedy when it traded up in the 30s. i hate these turning situations on no news. i'm always paranoid to believe that something might be happening and i don't know about it and other guys do. when the analysts are split, as was the case with dominoes in the 30s, that's when the technicians are needed. i asked for help to define if domino's moment had come and gone. here's what they said at the time. it had begun to drip back up. we would have blessed telling you to sell. we thought the thrill might be gone here, maybe we should ring the register, take the big gains
for our viewers. so tempting right poncy told us to do the opposite. he was anxious to show us why. with that return back up to 36, domino's was tracing out a perfect cup and handle formation, a pattern we have found to be as reliable as the head and shoulders. a total launching pad for a much bigger move. you caught the beginning at $36. and i was really nervous right there. he told me not to be. the stock cleimbed back to 36, then we got a side to 37, 38. that would be the beginning of a handle that almost always signals a much higher move. handle always goes like that. very reliable.
sure enough. poncy's work nailed it. it turned out that the stock was consolidating. this was positive action! domino's right there, what they were doing, embracing technology. the web and cell phone, facebook, eliminate order takers. let customers place orders directly via the net. we would have left a minimum of a double on the table if it wasn't for ponci's guides. monster beverage. i thought it couldn't go higher in 2011. i needed the skinny, because i heard red bull was crimping monster and that there was the distinct possibility of regulatory intervention in the energy drink business, always deadly. he said for months the stock of monster had been bouncing off its 100-day average. every time it looked like it was going down it rebounded. look at this, rebound, rebound,
rebound. he said monster was trading on a series of triangles, also known as flag patterns, and an upward sloping floor. see that? it punches right through. he said anytime you gent these pennant formations which are known as a continuation pattern, you do not have to worry about a stock running on empty. as a matter of fact, you had to buy this thing with both hands every time. the stock proceeded to 49 to 79, and short sellers may have been less negative, they were just worried about the government intervening. ultimately, monster tied up with coca-cola, a true monster in the soft drink industry. once again, i would have been shaken out of this stock's move if it weren't for ponci and his chart hand holding. there are a lot of different
formations. big move up. citi group, everybody hated it in june 2010 where the lows kept getting higher and the highs stayed the same. he loved this right here. this is what's known as a wedge pattern. they find it as reliable as the pennant. and we've also had tremendous success following the works of carolyn baronen. we like the work of carly garner who uses information to see when things are going the wrong way. the bottom line, technicians and analysts can co-exist. make peace with them both. you can make a lot more money than if were you blind to one or the other and certainly to both. "mad money's" back after the brake.
hey, cramerica. in charts you're looking for trends, finding big moves and the meaning behind them. on twitter, what's trending can tell you a lot. i'm counting down some of your top tweets to see what's trending. first up, we have a feel-good tweet from @d thompson. thanks for your books. i want you to continue to own a lot of stocks. you're not going to get a lot of activity from other bonds, and stocks compound. you get that dividend. keep reinvesting. here, my 19-year-old son wants to start saving for retirement. do you have any great advice?
unfortunately, it's boring as all get out. start with an s&p fund. once they put $10,000 aside, then they can focus on individual stocks. them's the rules. i'm not varying. next a shout out, tough one. don't let the haters get to you, jim, keep doing what you're doing, stay above their pettiness. periodically, i get tired too, and a little angry and feisty, but what i like is that this is my little zone here, right? it's all nfl, you come into my box, you're going to have to be tackled. i'm not lookin' the other way. next up, you want new investors to max out on index funds before investing in single stocks, maxing out on 401(k), okay to invest? this show is incorrectly known as some sort of trading show where we don't like index funds.
we're an investing show where we demand you be in index funds. sorry for the misinterpretation by you. and finally, next, excited to have found the action cramer show at a young age. i only wish my mom and dad were still alive, because then finally, they could say, hey, i told you, jimmy. stay with cramer. >> caller: i sure did miss you and you are show. >> well, you know what, periodically, you've got to spend some time with the family. i mean, family. let me just make this shot. this is killing me. >> like three days a week. robert, it's jim. robert? robert, you got cramer here. you got your lines crossed? this is cramer from that show "mad money"? >> caller: i want to know about
mcdonald's. >> the company taser is best known for this, its namesake, but it would be a leading -- sorry. then, that's the rosetta stone you need to understand this market's hieroglyphics. just be glad i'm old enough to remember this forgotten language. >> caller: i'm up 24 points. >> wow, she plays the game correctly. just got excited there. the lightning, stick with cramer. was it good? did it work?
>> narrator: in this episode of "american greed"... fugitive jason derek brown is a mormon missionary turned party king. >> from ski trips on the boat, to nights out at the bars, to motorcycling and atv'ing in the desert, he wanted to be the life of the party. >> narrator: jason's playboy life is bankrolled by a series of scams. but when money gets tight, he plots his most elaborate scheme yet. >> when people are in desperate situations, they do desperate things. [ gunshots ] >> he was down that alley, on his bicycle, and long gone. he was a ghost after that.