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.