Shorts Cower at Rally's Strength
By James J. Cramer
10/16/2001 05:40 PM EDT
"It's going to rally until ... I cover." That's the mindset of so many of the hedge funds I deal with right now. So many of the hedgies are saying, "It has to stop soon. It can't keep going up." And then, in hushed tones, they say the truth: "It is going to rally ... until I cover."
Oh, the pain of it all. The pain of missing this big move, the biggest of the year off the bottom. The pain of the endless rally, that seethes and burns and percolates underneath, that appears ready to roll over until United Technologies (UTX:NYSE - news - commentary - research - analysis) surprises with a good quarter, or Bank of America (BAC:NYSE - news - commentary - research - analysis) surprises with a better outlook or Citigroup (C:NYSE - news - commentary - research - analysis) surprises with a monster buyback. The pain of having to explain to the partners -- the real bosses -- how I didn't participate in one of the most fantastic reaction moves of all time, one that could have been predicted simply by noting that the market was more oversold than any time other than the crash of 1987!
And it will keep rallying until the shorts cover. That's the way it is. That's the way it always is.
I can't tell you how many times I had that nightmare in my sleep, that I had stayed short, or stayed out of the market because I thought it was too risky, only to discover that my paranoid dream was the reality of my day job. Then I would sit there at my terminals and think that maybe today, maybe today would be the day they would let me in, the day that the market would come down and I would be able to justify my negative stand. I would think, "Maybe I should take some of that Citi," and then see the buyback and say "Oops, missed that." Or I would say, "This Bank of America has to screw up and that will let me in." And it doesn't, and I don't.
In this market I would be swearing that Invesco should be selling on this anthrax scare or Fidelity should be selling on this crummy Lam Research (LRCX:Nasdaq - news - commentary - research - analysis) number. Doesn't Janus see how poorly the networkers really are doing? Don't the bulls see the The Philadelphia Stock Exchange Oil Service Index, or OSX, coming back up? Can't anyone see that Ford (F:NYSE - news - commentary - research - analysis) is teetering on the abyss? What is with the bulls? Don't they know that anthrax has gone from the tabloids to the desks of ABC, NBC and the majority leader of the Senate? What, are the bears blind, deaf and dumb? Don't they know to sell?
Ah, but you know what I think? I think that those who "knew to sell" have sold. Those who wanted out got out in the worst week since the Great Depression. The sellers had their chances. They had four chances, four straight days where every panicker and worrier and nonbeliever, every doubter and handwringer and frightened sheep headed for the hills. Leaving only deaf, dumb and blind nonselling bulls.
Of course we will eventually get to a level where the scales will fall from the bulls' eyes and they will recognize that they have had too much of a good thing.
But that might be at a moment out in time, a moment out in price -- perhaps when options are done expiring on Friday -- and not in time to bail out the shorts. Yes, when someone asks me when this rally is over, I, indeed, know the answer: When the shorts are done covering ... every last one of them. What should you do if you are trapped in that dream in real life? I like to do things small. I don't like grand strokes. I don't like lines in the sand. I would put a little something on, just something, so you don't stand around all day and say, "Let me in" or "It has to fall on this anthrax rumor or that poor quarter." That way you don't cause it to go down by yourself by going from monster short to monster long, which is inevitably what happens to the dogmatic hedgies who can't ever seem to get it right. |
