On Friday, CNBC’s Jim Cramer warned investors that the stock market is unlikely to rally anytime soon.
“The charts, as interpreted by Mark Sebastian…suggest this market has more downside, and it’s way too early to turn truly bullish,” he said.
“Unlike him, I also think we could get a big raise, but, for our Charitable Trust, if that happens we will have to sell,” he added.
The S&P 500 closed its worst month since March 2020 on Friday. The Dow Jones Industrial Average fell 8.8% for the month, while the Nasdaq Composite fell 10.5%.
Before getting into Sebastian’s analysis, Cramer first explained that when the S&P 500 declines, the CBOE Volatility Index, also known as the VIX or Fear Gauge, generally rises. And when the S&P goes up, the VIX usually goes down.
He then looked at a pair of charts showing daily action in the S&P and VIX:
While the S&P and VIX moved at the same pace in June, things changed in August. Sebastian notes that when the S&P began to fall in late August, the VIX had a “slow rally” instead of roaring like it usually would, according to Cramer.
This mismatch between the movements of the S&P and the VIX continued until early September, but only really exploded this week, Cramer said, adding that the market is still far from recovering.
“Sebastian is waiting for the S&P to go down while the VIX is also going down – that’s a classic sign that a sell-off is coming to an end,” he said. “That’s not happening right now.”
For more analysis, watch Cramer’s full explanation below.