Investors may have the ability to find positive returns in gold as the s&p 500 chart enters a historically challenging month, CNBC's Jim Cramer said Monday.
“The charts, as interpreted by the legendary Larry Williams, declare that August could be a tough month for the S&P 500, but a very good month for gold. Given the big picture backdrop today, that wouldn't surprise me one bit,” the “Mad Money” host said.
“Remember, during the initial debt ceiling debacle a decade ago, the stock market broke down and ... gold did great,” Cramer added, alluding to the actual fact a two-year suspension of the debt ceiling expired at the conclusion of July and Congress now needs to either enhance the government's borrowing limit or pause it once again.
Considering the S&P 500, particularly, Cramer said Williams sees diminishing breadth when tallying the number of advancing stocks versus declining stocks. That is along with an arduous seasonal period for the broad equity index, which can be up 16.8% year to date, Cramer said.
“Just since the start of summer time, [Williams] can indicate three moments when the S&P rallied to raised highs but the Advance/Decline line failed to produce a higher reading, meaning the market went up on not-so-hot breadth,” Cramer explained.
“For Williams, that suggests a lot of big money managers must certanly be selling many of these positions. He says he's seen this pattern before and it's not healthy. Normally when stocks rally, the Advance/Decline line must be making new highs. But that's not happening and this means this move would have feet of clay,” Cramer said, while disclosing Williams has brought a “small” short position in the E-mini S&P 500 futures.
The technician also sees bearish signals in a push indicator known as on-balance volume, which can be calculated with the addition of S&P 500 volume on positive days and subtracting it from negative days, Cramer said.
“The S&P makes new highs, but the On Balance Volume stays flat. That's another negative. Remember, for technicians, volume is such as a lie-detector. When it's weak, that means a move is deceptive. An additional reason Williams is worried about the remainder of the seasonally challenging month,” Cramer said.
On one other hand, Cramer said Williams'analysis shows a far more optimistic near-term outlook for gold. “Williams is long gold for precisely the exact same reason he's worried about the S&P: The seasonal pattern,” Cramer said.
Additionally, Cramer said data from the Commodity Futures Trading Commission shows commercial hedgers have been recently buying gold futures in a strong fashion, which historically has led to “a nice rally.”
Gold's value compared to Treasury bonds is another little bit of information working in support of the precious metal, based on Williams'analysis, Cramer said.
“As you will see from the chart, not just does the precious metal have a powerful seasonal trend on its side ... but it's extremely undervalued versus the bonds,” Cramer said.
