Baby Steps of Stability Are Needed to Commit Capital

The Nov. deadline for fund redemptions is now behind us. As I have mentioned previously, this is a market that will continue to work through upcoming negatives. We've been through a ton, but we have a lot yet to go. Clearly, the distribution pressure from last week's redemption requests kept things locked near the lows of the trading range that began at the end of September. The focus for this week will be the endless debate regarding the automakers and how the bailout will pertain to these companies, if at all.

The volatility measures in the last two months have created nothing but noise in the near-term daily charts. It seems that all traditional rules of price/volume behavior have failed. Capitulation scenarios haven't yielded sustainable uptrends, as all upside behavior has been fast and furious, rather than slow and stable. Distribution pressure off of those upside moves has been stable, but definitely not slow.

I can't make much sense of the most recent charts, as I want to find something that resembles a pattern or technical formation. The problem arises when sloppy charts lead to an appearance of a technical formation or pattern, the probability for that pattern to yield an expected result is much lower than I would have like, which results in a reluctance to commit new capital. You'll notice that I've been only 60% invested through the volatility range of Dow 8000 and 9700. This lack of conviction is a result of price behavior that I simply have not seen in the last 12 years in the markets.

My trading tracker, which normally yields a series of definable and statistical results (telling me whether I am going through a drawdown period or win cluster), has been negated, as setups that I would normally take have yielded to my non-aggression in the midst of the volatile noise of the last two months.

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At the time of publication, Schumacher was long Diamonds, ProShares Trust Ultra S&P 500 and the ProShares Trust Ultra QQQ, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.