vepoc: I saw Cramer too. As far as GTW goes, didn't someone post an article here yesterday (?) where GTW itself said that their sales weren't exactly stellar? I'll try to find it.
Anyway, here's Cramer's article from this morning's TSC:
Wrong! Rear Echelon Revelations: Tech Naysayers Can't Contend with Strong Business
By James J. Cramer
12/2/98 8:08 AM ET
It's hard to preannounce bad earnings when your business is smoking. That's the reason why the drives popped and took a lot of technology with them yesterday.
First, let's set the stage for this rally. On Monday, Piper Jaffray analyst Ashok Kumar, a man bent on making his name in this cycle, made an extremely negative call on Gateway (GTW:NYSE). The substance of the call was that, after all of the hoopla about how computer sales may have been very strong across the board in the industry, business didn't get done. Gateway, at this pace, would miss its quarterly estimates.
The timing of the call was exquisite. Gateway had just ramped 15 points, in part because the overall PC business had been strong and in part because Prudential, the last firm to have a good look at Gateway's business, said that things were strong there. Kumar's call took people's breath away. The call said that not only were we operating on a false set of pretenses, but that things had just gotten very bad.
Remember, tech stocks trade like atomic dominoes. When they go, they go very hard and fast. Immediately, Gateway sunk Dell (DELL:Nasdaq), Compaq (CPQ:NYSE), Intel (INTC:Nasdaq) and Microsoft (MSFT:Nasdaq) and then Micron (MUEI:Nasdaq), the PC innards like the drive stocks and, ultimately, the market itself.
Of course, there were extenuating circumstances, but Kumar's call had the look and feel of a "right from the horse's mouth" report. Coming right when "preannouncement season" officially begins -- meaning when companies begin to fess up that their quarters did not meet expectations -- this was the home-run call.
There was only one problem: Credit Suisse First Boston had gathered under one roof everybody in tech who mattered. On Tuesday, they spoke, and they spoke in unison. Business, they said, is smokin'.
As many people remain incredibly skeptical of this move off the Oct. 8 bottom, they had already placed some serious money bets against such a rosy scenario. I saw shorting in put-buying in the disk-drive stocks, for example, all day Monday.
But when Western Digital (WDC:NYSE), which has been as downbeat as a Russian tax collector, announced that business had gotten better, you could sense the noose tightening on the extrapolators of Kumar's Gateway call.
Worse, those who had made the field bet, either through NDX puts or through Morgan Stanley High Tech puts, had no place to turn other than to sell the puts or risk neutroning their firms. So what started as a "Western says business isn't as bad as it has been," turned into a rout to the upside that took Intel and Microsoft past where they were at the start of Monday's session.
I know many of you do not believe me or can't put much credence into the notion that a short-seller or a group of short-sellers could really move whole industry groups. To you I say, not only can it happen, but I have done it myself.
A few years back, in a fit of insanity, I chose to sell NDX calls, as the premium on them was out of control. I probably sold close to 1,000 of them against about 500 calls that I was long. The calls were out of the money. But, as the market kept ramping in one of those tapes like we have had since Oct. 8, I realized that, before the calls I had sold at 10 turned into 20, I better bring them in. My buy of 500 NDX calls caused the Nasdaq to go up at least 25 points as my broker bought them back with all the finesse of a pile driver.
So, with tech firms, one after another, proclaiming so far so good, the bears' best hope, that Kumar had an early great call, seemed much less likely. And those who bet the farm Monday that there would be no tech under the tree for the holidays on Tuesday bought the farm.
Random musings: Margin requirements are one boring subject, and I was praying that the conventional media would pick up the changes in the margin rules at various firms and I would not have to enlighten on the topic. Suffice it to say that there are two types of margin requirements: those that the Fed controls and those that are controlled by the firm that you might be borrowing from. In the last few days, some of these firms have tightened their "house" margin rules on particular stocks, trying to rein in the incessant trading in certain Net stocks. Are the firms trying to curb speculation? Nah, they just want to get paid. If you put up very little money for a trade and a stock drops 35% (as some of these Net stocks have), you might walk away from the trade. Illegal? Sure. Does it happen? Yes. So some firms are demanding that you put up more money than you might have otherwise so you won't skip. It has the effect of curbing speculation.
There had been rumors about the Fed tightening the rules, but that has not happened yet. You should ask your broker whether he or she has changed the rules on certain stocks if you have questions about this, as each firm has its own set of rules and I don't have the relevant details on any of them.
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