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Charts suggest it is “far too early” for the market to recover

Charts suggest it is “far too early” for the market to recover

CNBC̵[ads1]7;s Jim Cramer warned investors on Friday that the stock market is unlikely to recover anytime soon.

“The numbers, as interpreted by Mark Sebastian … suggest that this market has several downsides and it’s way too early to be really bullish,” he said.

“Unlike him, I also think we could get a big increase, but for our charitable trust, if that happens, we’ll have to sell a little bit,” he added.

The S&P 500 ended 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 moves lower, the CBOE Volatility Index, also known as the VIX or fear gauge, usually moves higher. And when the S&P moves higher, the VIX usually moves lower.

He then examined a pair of charts showing the daily action in the S&P and VIX:

While the S&P and VIX moved at the same pace in June, things took a turn in August. Sebastian notes that when the S&P started falling in late August, the VIX had a “slow-rolling rally” instead of roaring like it normally would, according to Cramer.

This mismatch in the movement of the S&P and the VIX’s movements continued through early September, but only exploded this week, Cramer said, adding that the market is still some way from recovering.

“Sebastian is waiting for the S&P to go down while the VIX is also going down – it’s a classic tale of a sell-off coming to an end,” he said. “That’s not happening right now.”

For more analysis, see Cramer’s full explanation below.

Watch Jim Cramer break down fresh technical analysis from Mark Sebastian

Jim Cramer’s Guide to Investing

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