With such volatile swings to kick off the first week of 2016, Jim Cramer is ready to switch from capital preservation mode to capital appreciation mode — something that needs to happen before a sustained rally can begin.
"I've put together an extensive checklist of the things that need to happen before we can be more concerned about making money than we are with not losing money," the "Mad Money" host said.
Cramer named 14 events that need to occur for the market to find a bottom and for stocks to stop endlessly losing money:
No. 1 Federal Reserve must change the debilitating narrative that it adopted after the first rate hike. While Cramer understands that the stock market is not the Fed's main concern, the Fed needs to know its own strength and recognize that when it speaks about the need for four more rate hikes in 2016, it creates tremendous uncertainty. Cramer wants the Fed to be more data dependent, not just on employment, but other factors such as deflation and slowdown in various areas of the economy.
No. 2 Political uncertainty must resolve itself. Right now, Cramer sees both the Democratic and Republican parties as being anti-capital appreciation and pro-capital preservation. He worries that both parties are poised to make the situation on Wall Street uglier than any bull would want it to be.
No. 3 China must become a more positive force in the world. In other words China needs to clean up its act, the government needs to be more transparent, and its stock market needs to stabilize.
No. 4 Commodities need to bottom. The persistent deflation for all commodities has caused entire countries to derail, not just their stock markets. Materials such as copper, tin, iron and aluminum remain in free fall because of China. This has created an environment that crimps investment.
No. 5 Oil must stop going down. Bankruptcies and reorganizations must occur this year because a lot of companies are in distress. Players such as Petrobras, Chesapeake and Freeport-McMoRan are running out of capital and may have a hard time paying debt.
"It all comes due in 2016 if oil doesn't stop going down, and I don't think it will without a huge geopolitical crisis occurring in the Middle East," Cramer said. (Tweet This)
No. 6 The world must stabilize. There are so many conflicts going on around the world right now, and Cramer is worried. Saudi Arabia cut off ties with Iran, Brazil could crumble and repudiate its debts. Those and the immigration crises in Europe are just a few of the issues Cramer is watching.
No. 7 Death to brain-dead zombie companies. There are so many large companies like Petrobras and Vale out there needing to reorganize that the high-yield bond market has become a worrisome place.
No. 8 must stop going higher. The greenback may have topped versus the euro or yen, but that is not certain. Until the dollar gets weaker, Cramer does not expect to see a stabilization of U.S.-based international companies.
No. 9 Return of a healthy merger-and-acquisition market. Not just random activism, but actual M&A activity. Cramer wants to see more deals, particularly those where the acquirer's stock goes higher.
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No. 10 A strong IPO market. Right now, the market is not functioning enough to allow many of the private-equity deals to come to market. Thus, they will not be able to reliquefy balance sheets to avoid going into a recession.
No. 11 Recognize some industries have peaked. Cramer thinks various industries have peaked in cycle, such as autos, housing and cellphones.
No. 12 Broaden leadership. Right now, only the utility stocks have stopped going down, and any hopes of banks rallying are gone with the idea that interest rates will not be going higher soon. Cramer wants to see many sectors return to growth. If leadership broadens, then the charts of many stocks would look better.
No. 13 Expand list of favorite stocks. Even if that means FANG, Tesla, and biotech must give up the ghost. Cramer doesn't want this to happen, but these stocks reflect too much optimism. These are the stocks that tend to get hurt the most before a bottom can occur.
No. 14 Sentiment must get more negative. There was a tradeable bottom last fall when the bears dramatically outnumbered the bulls, when the market tanked. This needs to happen again in order to rebound.
"Many of these issues on the checklist must be resolved before we can be more concerned with making money than not losing money," Cramer said.