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Charts Suggest the Stock Market Is Getting Close to a Near-Term Top, Cramer Says

Scott Mlyn | CNBC
  • CNBC's Jim Cramer said Tuesday technical analysis indicates investors may want to take a cautious near-term stance on the stock market.
  • "The charts, as interpreted by the legendary Tom DeMark, suggest that the market's getting close to a top, especially the S&P 500 and the Nasdaq 100," the "Mad Money" host said.
  • DeMark is "not too keen on the Dow Jones Industrial Average, either," Cramer added.

CNBC's Jim Cramer said Tuesday technical analysis indicates the stock market may be approaching a near-term peak.

"The charts, as interpreted by the legendary Tom DeMark, suggest that the market's getting close to a top, especially the S&P 500 and the Nasdaq 100. He's not too keen on the Dow Jones Industrial Average, either," the "Mad Money" host said.

The breakdown of DeMark's analysis comes one day after Cramer looked at charts from another trusted technician, Larry Williams, that also projected a "tough month" for the S&P 500.

Cramer said that for DeMark, a near-term peak for an index arrives when it strikes his price target models as his timing countdown flashes a sell signal.

"So far, DeMark's models for time and price just haven't coincided, so rather than a major top leading to a brutal decline, we kind of get these garden variety pullbacks, maybe 5% to 10% or less, and then the rally gets going again. But now it's different," Cramer said. "Now DeMark's timing and price models are finally in alignment and he thinks we could soon see a significant top in both the S&P 500 and the Nasdaq 100."

Here are two charts using DeMark's analysis, with the first one being of the S&P 500.

The second is of the Invesco QQQ Trust, a popular ETF that mirrors the tech-heavy Nasdaq 100.

Both the S&P 500 and the QQQ are on day 12 of DeMarks' well-known 13-session sequential pattern, according to Cramer.

To reach 13, the S&P 500 needs to go above 4,430 intraday and close above 4,419, Cramer said. It finished Tuesday's session at 4,423.15.

"That could easily happen tomorrow if the S&P rallies oh-so-slightly in the morning ... and then hangs in there for the rest of the day," Cramer said. "That is a very threatening pattern. ... Tomorrow is day 13. It's pretty much a pivotal session."

For the QQQ, Cramer said, "that countdown will go to 13 and fire off a sell signal the moment ... the QQQ closes above 369 — up a only a few points from here, so we're really close." The QQQ ended Tuesday's trading day at 366.81.

"If the S&P and the Nasdaq-100 both give you these sell signals at roughly the same time, DeMark thinks it could get ugly," the "Mad Money" host said. "It's the first time this has been a real possibility since the bottom in March of last year. Of course, if he's wrong, there's a chance the S&P and the Nasdaq could both give you a quick two or three day rally in a good-news environment, but right now DeMark thinks a meaningful top is far more likely."

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