Whenever the stocks of companies that we think are attractive purely on their underlying business fundamentals start to sell off, we know we want to buy. The question is: When to buy? Valuation is the primary factor to consider. However, in a market sentiment-driven decline like we saw Thursday, valuation isn’t really the focus for sellers; they just want out. When sentiment is driving the trading, we must acknowledge that the price action has as much, or more, to do with irrational behavior as it does with rational, fundamental-based investing. In those environments, the charts can be helpful as they reflect the actions of all market participants, rational and irrational alike. While the S & P 500 ‘s reversal into the green is encouraging, the damage from the prior session remains. Methodology We like to keep our study of the charts relatively simple, looking for support and resistance lines based on the 50-day and 200-day moving averages, as well as trendlines and past support/resistance levels. Momentum tools such as the relative strength indicator (RSI), which indicate overbought/oversold conditions, are also useful. Tracking volume as a means of confirming if what we’re seeing in the charts is based on a high level of activity or not signals how much we can trust the price action. We would buy the stock of a company we felt had strong underlying fundamentals that was selling at a good value, even if it had an ugly technical setup. But we would never look to purchase shares in a company we didn’t think was fundamentally sound, no matter how attractive the chart looked. Looking at the charts can help establish key levels ahead of time and provide a roadmap in rocky markets. Having that roadmap as something to lean on can be incredibly helpful in keeping emotions at bay in a volatile market because you come to the market with the understanding that your plan was laid out under better circumstances with a clearer head. On Friday, we did pick up more shares of Corning and Honeywell , the former of which we also bought earlier this week. Clearly, we think those are buyable here, along with Meta Platforms, which we also bought earlier this week . In this analysis, we are using two-year charts to find some buy levels for Microsoft and Nike . Microsoft buy levels: around $500 and $465 Starting with Microsoft, the stock is trading about 6.5% off all-time highs. The 50-day moving average has not shown much support since last August. However, the $495 level has, with shares bottoming out there in early September and again last week. With that level holding in, we think members are good to pick up shares right here and now. That said, with the 50-day right above us at $514, there is no need to make a “statement buy” and get aggressive. Should we reclaim the 50-day (red line) moving average and see it start to act as support, you may end up paying a bit more to build the position, but you do so with the knowledge that the stock has continued to consolidate and that this support area around the 50-day has strengthened. Should $495 fail, we don’t find too much in the way of support until about $465, where we find both the 200-day (yellow line) moving average and an old high from July 2024. In technical analysis, the Polarity Principle dictates that old highs, once overcome, become support – and vice versa, that old support, once defeated, becomes resistance. A move to $465 would mean shares off nearly 15% off highs and trading at about 29 times forward earnings estimates, a relatively attractive valuation versus what we’ve seen over the past two years. Nike buy levels: around $65, $60, mid-$50s At Nike, where we think the fundamentals are improving as management executes on its turnaround plan, shares are attractive right here at around $65 based on our view that earnings are going to rebound by the end of this fiscal year (ending May 2026). That said, we have to acknowledge that this isn’t a great-looking chart, with shares trading below both the 50-day (red line) and 200-day (yellow line) moving averages, which are on the verge of forming a “death cross,” a bearish signal in technical analysis. As noted earlier, though, an ugly chart is not on its own enough to deter us from what we think is a good quality story. It does, however, mean that we need to be realistic about the possibility of lower levels, as shares have a decent amount of overhead resistance with both moving averages hanging out around $65.50. The next level of interest comes in around $60, which served as support after we recovered from the depths of the April lows. Below that, we’re looking at the April lows, around the mid-$50s. Barring any truly negative news, a move there would be highly attractive given that level represents peak trade war concerns, and we’ve seen good progress from management in executing on its turnaround plan since then. So, ultimately, we would look to put money to work here, and every $3 to $5 or so dollars lower to build a position. Before we wrap it up, we want to provide a thought on the term “price action.” When we say price action, what we mean is to consider how the stock is trading. Does it trade up on bad news, indicating that investors may have gotten too negative? Does it move lower on good news – as Palantir did after its blowout earnings report, indicating that a lot was being priced in? Does it hold in when others are selling off, like what we’re seeing from Microsoft, either because it may have already taken the hit or because it represents quality and value? Those are two things investors become increasingly attracted to in uncertain and volatile times. Learning to take your cues from the price action is another way to think about when to put money to work. Reading price action is about interpretation, and everyone can interpret things differently, but thinking about how stock prices react to news, or versus peers, or against the broader market action, along with a study of the charts, can be very helpful in building positions in volatile markets while keeping emotions at bay. As long-term investors, stock selection is key, which is why we don’t bother to look at the charts of companies we don’t like for fundamental reasons. However, in volatile times, the charts, along with a consideration of price, can help with putting money to work in those names we love, in a disciplined, methodical manner. (Jim Cramer’s Charitable Trust is long GLW, HON, META, MSFT, NKE. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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