Feeling shut out of this hot market? Maybe some FOMO — fear of missing out. You’re not alone. The S & P 500 keeps plowing through record highs in the first week of December after November posted the best monthly gains of the year. All that buying, however, has pushed the market into overbought territory, according to the S & P 500 Short Range Oscillator , a technical indicator Jim Cramer has used for decades to track trading momentum. Our discipline mandates that we consider booking profits in an overbought market, as we did with one of our big winners Microsoft on Tuesday. However, we also pick our spots to buy. On Wednesday, we bought more shares of our newest position, Bristol-Myers Squibb , on a recent dip. As long-term stock investors, the Club believes fundamentals are what matter most when it comes to making investment decisions. However, a peek at the technicals can also be useful. Methodology We are conducting this technical analysis from the perspective of a new money investor looking to initiate a position or someone with an existing position sitting in the loss column where another buy could help lower their cost basis. For those with existing positions, this exercise can help dictate when might be a good time to consider breaking basis, should you feel the need to get a bit more exposure. That, however, violates our discipline and should not be done lightly. Our analysis can also inform members when these stocks are trading at so-called “battleground levels,” which may prompt you to adjust your exposure accordingly. We looked at the charts of two of our buy-equivalent 1-rated stocks — Constellation Brands and Home Depot — to identify levels that can be bought. Constellation Brands buy levels: $230, $210 The Mexican beer powerhouse on Nov. 26 successfully tested $230 per share, a key technical support level for the past two years. There is also a longer-term uptrend that comes into play at the $230 level, which is represented by the pink line. The late November support test came on elevated trading volume. We look at volume as sort of a stock lie detector, because moves made on higher volume are more trustworthy From a price-to-earnings ratio perspective, we already like the stock — and as Jim Cramer noted on the Morning Meeting for Club members on Nov. 26: Constellation’s cash flow alone is reason enough to be interested in the stock at these levels. On a fundamental basis, the stock is already well below its five-year historical valuation on 2025 earnings estimates. On the technical side, however, the stock is currently below both its 50-day and the 200-day moving averages. That means there is resistance above us at $242 and $250 that will need to be overcome before shares make an attempt at prior highs. Fundamental worries about the 25% tariffs on Mexican imports that President-elect Donald Trump proposed Monday evening are certainly a consideration that can’t be ignored, however, that’s arguably being priced in with shares trading well below the historical average — 15.8 times forward earnings versus 19.6 times historically over the past five years. Shares of Constellation lost more than 3% on Nov. 26, the day after the Trump announcement, which was curious because we couldn’t understand how any investor would be surprised by Trump tariff plans. That’s why Jim said the stock was a buy on the dip. During Morgan Stanley’s consumer and retail conference, Constellation CFO Garth Hankinson said Tuesday afternoon there are several levers to pull to deal with any tariffs. He cited accelerating cost savings, making sure there’s plenty of supply in the U.S., and how to balance incremental price increases. Those possibilities are being explored but no decisions will be made until tariff plans become policy. Hankinson’s comments came on the heels of the company’s announcement that it’s selling the Svedka vodka brand. That’s a positive move to address Constellation’s struggling wine and spirits business. Should $230 fail, we would want to proceed with some increased level of caution because there is not much in the way of support between the $230 level and $210, which is where we see that prior low back in January 2023 — where our uptrend line starts — especially should emotions take hold of the stock and investors start to “sell first and ask questions later” on a some random Trump tweet about tariffs. Home Depot buy levels: $418, $406, $375, $370 We see several interesting technical levels, including $418 per share, which until a recent breakout, was the all-time high in the stock. For many technicians, a breakout has to be tested. That’s done when the stock goes above a prior high, as it is now, but then falls back to that prior high and finds support, meaning buyers. If that happens, it may be viewed as confirmation that the break is real and can be bought. In other words, from a technical perspective, you don’t want to buy this breakout right here — but rather, buy the bounce off the old high, especially should it come on increased volume. The first level to buy would be the $418 level. Keep in mind though, that’s only slightly more than a 2% pullback from where the stock was trading Wednesday. If you don’t have a position at all, it may be of interest but if you do, then you’ll want to wait for a larger decline, one that will ideally improve your overall cost basis. From there, we get to $406, which is where we find the 50-day moving average. Remember, when a stock is trading above a moving average, it’s viewed as support and when a stock is trading below a moving average, it’s viewed as resistance. Fundamentally, with longer-term bond yields interest rates seeing some relief Wednesday, we could see even lower mortgage rates this week. Mortgage rates dropped last week, and home loan demand soared. Cheaper mortgages on a sustained basis should give homebuilding and housing turnover a boost. We think Home Depot is in the sweep spot when that happens to sell supplies and equipment needed to build homes and the tools needed for renovations. Should shares fall below the $406 level, we would then look to the $375 to $370 region — $375 being where we see an uptrend going back to October 2023 come into play; and $275 being where the 200-day moving average comes into play. Since the stock is trading above the 200-day moving average, that level is viewed as technical support. (Jim Cramer’s Charitable Trust is long STZ, HD, BMY, MSFT. 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.
An exterior view of the New York Stock Exchange on September 18, 2024 in New York City.
Stephanie Keith | Getty Images
Feeling shut out of this hot market? Maybe some FOMO — fear of missing out. You’re not alone.
The S&P 500 keeps plowing through record highs in the first week of December after November posted the best monthly gains of the year.