Baby Steps of Stability Are Needed to Commit Capital

With the VIX remaining in the 60s, I don't expect this to change anytime soon. I need the VIX to fall to at least to the 40s again before trying to make sense of most definable trading patterns that have worked for me a higher percentage of the time over the last decade. I won't get really comfortable until the VIX is back below the 30 level. I can't imagine that will occur before year end.

This week's volatility will be a result of the uncertainty surrounding the automakers. We also have PPI and CPI data due out this week, with FOMC minutes being released as well. Fundamentals still stink, and this won't end until at least the second quarter of 2009, so I don't care what the economic data suggests any longer.

What I do care about is a market that begins to discount the information and behave in a stable manner post-results. Until that happens, I will have to stay patient through these 500- to 700-point swings in the Dow.

For the upcoming week, the main thing that needs to remain intact is the most recent lows. The test and resulting reversal last week off of the lows continues to be discouraging. Again, I would much rather see slow stable moves higher than these major spikes that get faded immediately. Slow and stable behavior allows people to put floors in underneath price behavior. Spikes don't inspire confidence.

Should the lows hold, I would like to see a slow and stable move back above Dow 9000 on a closing basis to help with the technical picture in the near-term. The bulls in the S&P 500 would need to see a move above 925 this week, while the Nasdaq 100 (NDX) needs to regain 1240. I don't need major levels regained in a week at this point. I need baby steps of stability built as we move through all the expected bad news ahead of us over the next six weeks.

Click here for larger image.

Know What You Own: Other index proxies that may be of interest are the ProShares Trust QQQ (QQQQ - commentary - Cramer's Take), the S&P 500 Depositary Receipts (SPY - commentary - Cramer's Take), the UltraShort S&P 500 ProShares (SDS - commentary - Cramer's Take) and the UltraShort QQQ ProShares (QID - commentary - Cramer's Take).

---

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.