Jim Cramer: Charts show the U.S. dollar index could be bottoming

"Mad Money" Jim Cramer broke down chart analysis from legendary trader Larry Williams, who sees signs that the American greenback could be making a comeback. Subscribe to CNBC PRO for access to investor and analyst insights: https://cnb.cx/2Vtntx6

CNBC’s Jim Cramer on Tuesday advised investors to be prepared to reevaluate their industrials holdings, should the value of the American greenback rise.

The U.S. dollar index, typically viewed as a safe-haven investment, set a new two year low during the trading day, but a “contrarian” call from renowned trading expert Larry Williams suggests that the index could be bottoming.

The dollar, which floored at 92.13 Tuesday, is now down 4.23% this year.

“The charts, as interpreted by the great Larry Williams, suggest that the U.S. dollar could be ready to come out of its funk and start rallying again,” the “Mad Money” host said. “If he’s right, we’re going to have to reassess a whole host of American companies that’ve been getting a huge boost from our weakened currency, and by reassess I mean lighten up on stocks of companies with big overseas sales.”

The greenback, which topped out at 102.99 in March, has tumbled as the federal government carried out multiple fiscal rescue programs to buffer the economic damage from the coronavirus lockdown in the first half of the year. U.S. currency was also weaker against both the euro and Japanese yen.

As the dollar set a new low, the S&P 500 managed to reach a new all-time high during the session, recovering all of its market losses since reaching a peak prior to the coronavirus outbreak growing into a global crisis. The greenback reached a 27-month low.

Congress pushed through emergency legislation spending trillions of dollars on aid for Americans, hospitals, businesses and governments, while the Federal Reserve pumped trillions in liquidity into financial markets.

“That’s one reason why so many American industrials have managed to have great stocks, here,” Cramer said. “A weak dollar means their exports are cheaper for the rest of the world. It gives us a big competitive advantage, even though it also makes imports more expensive.”

Citing Williams, Cramer pointed out multiple indicators that suggest the U.S. dollar index may be poised to reverse course. They include correlations in the crude market, a greenback nearing seasonal lows and the TD Sequential — a momentum indicator — suggesting the decline in the dollar is coming to an end.

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