Jim Cramer took a look at the chart action in three interesting charts prepared by Bob Lang: Caterpillar, D.R. Horton and RH.
By Tyler Clifford
“In a confusing market that’s once again circling the wagons around tech, the charts — as interpreted by Bob Lang — say you should consider some interest rate-sensitive stocks,” Cramer said. “I think he’s right.”
Jim Cramer put the spotlight on three cyclical stocks that have been under the radar in a volatile market.
Interesting charts: two construction names and one retail play
After heeding technical advice from ExplosiveOptions.net founder Bob Lang, Cramer recommended the construction stocks of Caterpillar and D.R. Horton and a retail play in RH, based on how their price trends stack up against their industry peers.
Money invested in the market has jockeyed between the economic recovery and stay-at-home themes as Wall Street weighs updates on coronavirus vaccine research and economic data.
“For months I’ve been saying you need a barbell portfolio with some Covid plays and some recovery plays,” he added. “Any of these three could easily fit in on the barbell.”
The high-flying tech performers, whose companies have been integral to the remote work and school frenzy, took a breather during the broad market sell-off last week after big gains were realized in the tech sector over the summer.
While the tech stocks have recovered some of those losses in recent sessions, the market remains plagued by an uncertain environment.
The stocks of D.R. Horton, RH and Caterpillar are attractive to Cramer for their relative strength measures.
“When you look at the charts, it’s crystal clear that money managers have been buying these three stocks hand over fist, even as they paused today because today was all about technology,” he said.
“As Lang sees it, D.R. Horton got overbought in late August,” Cramer said. “Now, though, Horton’s worked off that overbought condition, it’s been rebounding off its lows, and Lang says the volume trends have been mildly positive. He thinks D.R. Horton’s ready to run again, with this next leg possibly taking it to the mid-$80s,” and it “makes a lot of sense to me.”
“When RH exploded higher last week, we got a major buy signal from none other than the MACD [Moving Average Convergence Divergence]. The black line crossed over the red one, and this is one of the most reliable patterns in the book,” the host said.
“Lang sees this $374 stock trading well above $400 by the end of the year. Now, I think he’s going to be right again, [but] you might want to wait for more of a pullback.”
“While the stock’s currently overbought, Lang says that doesn’t make it a sell. He thinks you should wait for a mild pullback here and then do some buying,” Cramer said. “If it comes down a bit more to the 10-day moving average, around $148 per share … [Lang] says you’ve got to buy it. He’s betting it goes to $175 by the end of the year.”