some market theory....ummm, ok it's james cramer:
read at your own risk.( he's long pfizer)
Wrong!
Jul 23, 1998
<<Wrong! Dispatches from the Front: Five Signs of Strength on a Down Day>>
By James J. Cramer
Look, this is still standard correction fare. You can't expect tech to rally when Hewlett-Packard (NYSE:HWP - news) says tech is bad, even if it is Hewlett's fault. The company still has some credibility left (don't ask me why), so people will conclude that things have gotten soft -- even if Hewlett says business picked up in July. That will cause collateral selling in everything from printers to PCs.
Merck (NYSE:MRK - news) can't bounce back after bagging people. There have to be some guys who didn't know yesterday that things had slowed, or had to take their committee votes and didn't get around to selling today. Not everybody can move on a dime. Merck can cause jitters across a host of drug companies.
And then there is Computer Associates (NYSE:CA - news) . Here is a stock that tends to find itself in a lot of portfolios. It is a software company for portfolio managers who need understandable tech. So it is quite logical that when something goes wrong, they bail. And the question again gets asked, have things gotten worse all over?
What caused more havoc, though, was that the sellers all chose to use different brokers, all kept coming back for more selling, and never, ever let the stock lift. That kind of concentrated selling, coupled with an opening that was inefficient and way too high, contributed to the ongoing ugliness of the day.
So then, why is it typical? First, because good stocks acted well on good news. Chase Manhattan (NYSE:CMB - news) reported a good quarter and it went up. Intel (Nasdaq:INTC - news) and Microsoft (Nasdaq:MSFT - news) both acted terrifically as people reacted to Hewlett's contention that July has been a pretty good month with lean PC inventories.
Second, the selling was contained even though Greenspan cited the inevitability of a crash. On a really bad day, with a really bad tape, that comment could have sent the market down 200 points. The fact that it didn't is a sign of strength, not weakness. In fact, the market had a nice bounce, and some stocks did perfect U-turns and went back to the black.
Third, Net stocks, which, like it or not, are the current barometer of people's enthusiasm for stocks, rallied even during the worst of the downturn. Even if you hate those stocks, you have to recognize that they are leaders and when leaders lead, others will follow.
Fourth, Pfizer (NYSE:PFE - news) , which I am long, rallied despite new reports of deaths via Viagra, which is, again, a huge sign of strength.
Finally, the news in Japan, which had been hopeful, is turning more negative with word that the ruling Liberal Democratic Party is taking a business-as-usual approach. And yet there is no wholesale selling stemming from that change.
I am sticking by my game plan: wide-scale buying and looking for opportunities created by dislocations. For example, not having been long Computer Associates going in, I took a stab at a small trading position. If it doesn't rally tomorrow, I will probably boot it, but the last five points seemed like pure emotion and I like to buy panics, not sell them.
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication the fund was long Computer Associates, Chase Manhattan, Microsoft and Pfizer, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at letters@thestreet.com.
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