How to Restore Lapsed Faith

It was nice to get 5% to 25% moves in some of the names that I mentioned last Monday. U.S. Oil (USO - commentary - Cramer's Take) was one of my better pickups on the interesting surge in oil prices last week. I certainly didn't expect such a move in a week's time, and I half-thought we'd see lower oil prices before we saw higher prices over the next six weeks. After the beating of 2008, I'll take any gifts offered.

Moving out to the indices, I was happy to finally see a closing above the 50-day exponential moving average levels in all three. I felt that while buying pullbacks and retracements was good to keep a relatively strong floor in the markets, I needed to see the "buy high, sell higher" approach before the inauguration if this market was going to offer any option for those stuck at higher levels to unload more of their losing positions. The psychology around the first six weeks of this year will most likely not be based on greed, but rather how can one minimize the losses that were racked up on paper from September through the end of the year. I firmly believe this will keep a lid on any major rally in the first quarter of next year.

Personally, I am looking for Dow 10,500 to begin unloading some of that exposure that I picked up at 11,200 and getting rid of some of the exposure that was picked up at 9,200 and 8,200 as I was legging into the pullback from May's high near Dow 13,100. I don't care if it comes tomorrow or in February, but I would love to be able to look at the second quarter with clearer eyes and more cash on hand than I have now.

For the S&P 500, I would very much like to see this close above 920 have some staying power. I can't imagine we'll get back to the 1200s in the first quarter, so anything near 1140 would require a massive reduction in the exposure to the S&P 500. I may inch out along the way if the markets allow, but I don't like the prospect for financials to flounder and have oil stocks remain off highest levels. This doesn't bode too well for the S&P 500 in the first quarter. Most economists still have the earnings forecasts too high for 2009, and until I see them start readjusting those forecasts lower, I don't believe the discounting mechanism in this index will work too well.

The Nasdaq 100 (NDX) unfortunately lags. It has lagged considerably through all of this mess. The behavior of 2008 almost brought me back to the memories of Infoseek, Lycos, Webvan and Cisco (CSCO - commentary - Cramer's Take) at a price of $5 in 2001. Remember those? It seems tech remains unloved and therefore will probably have a harder time getting back any semblance of leadership in the first quarter of 2009. I don't expect this index to do as well in points gained, but I would love to see this index back to NDX 1485 if some of that $9 trillion in money market funds is to come back to the markets.

I realize these are probably lofty targets, but again, I am not looking for sustainability in these kinds of moves. I am simply looking for some restoration of investment accounts that will let the bottom-fishers get a little richer while investors get less poor. If we can reach into these levels, I intend to be in more cash for the second quarter, as I would really love to eventually see the retest of November levels, although I'd be in a better position to capitalize on it.

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Know what you own: Schumacher mentions the indices. ETFs that track major indices include ProShares Ultra Dow 30 (DDM - commentary - Cramer's Take), ProShares Ultra S&P500 (SSO - commentary - Cramer's Take), ProShares Ultra QQQ (QLD - commentary - Cramer's Take), Diamonds Trust (DIA - commentary - Cramer's Take), ProShares QQQ Trust (QQQQ - commentary - Cramer's Take), SPDR Trust (SPY - commentary - Cramer's Take) and iShares Russell 2000 (IWM - commentary - Cramer's Take).

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At the time of publication, Schumacher was long SSO, QLD, DIA and USO, 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.