Buy the dips week coming up! Run 'em up prior to Tuesday morning, Feb 15th, sell the borrowed shares in the first hour, hold on to the core forever. See Cramer below, from thestreet.com, definitely worth the ~8 bucks a month:
Making a Bet in Advance of the Goldman Tech Conference
By James J. Cramer
2/7/99 12:18 AM ET
Was Friday's intra-day bottom for real? And why did the market stop going down? Does any of this stuff even matter?
Let's take these one at a time. On Friday, at about 12:45 p.m., the market was pretty much in a free-fall. Of course, I am talking about "the New Market" not the Dow Jones, which consists of a motley group of cyclicals and drug companies with some finance lumped in. I'm talking about the 'Softs and the 'Tels, and the stuff that will eventually make up TheStreet.com's Millenium Index if my wife gives me some time off some night to craft the darn thing.
Free-fall to me always means the same thing. That's where sellers want out worse than buyers want in, as defined by that weird scenario where I am willing to pay $123 for Intel (INTC:Nasdaq) but someone wants only $122, 'cause he's so afraid it will be at $120 in a few minutes.
I was in the Intel frame of mine Friday during the bottom. I was aware of two large institutional sellers who had been pounding the thing over and over again, as if Intel were some sort of fortress door, and the sellers were alternating battering rams. At $124, both of these sellers gave up, reckoning, I guess, that the damage was done and they would wait for better prices to get out. At the same time, at the exact same time, a whole bunch of little orders came in to Intel. In my desk checks -- in my physical pick up the phone to ask if anybody has some Intel to go -- I couldn't find anyone with"size," the term we use to describe big movers. How do I get this stuff? Pretty easy: I go in and say I would like to buy 10,000 Intel. That's the price of admission. If a desk is working a seller, they quickly oblige. If they have no Intel to go, they tell me. Of course, if I did this to 10 desks I would be long 100,000 Intel pretty fast, if there were a seller.
But that would be wrong. You can't go in and take a whole bunch of desks with 10,000 shares simultaneously. That foments activity, and it is illegal -- a violation of the 1934 Securities Act.
However, it is not illegal to ask how much Intel you have to go, if you are placing an order with one firm. And that's what I do. The risk is that I get buried in Intel after I buy it from one guy after another. But I am prudent enough to buy 10s, not 20s or 30s, and I can handle that pain and I don't go shopping. I use one or two brokers.
Anyway, at 12:45, I was conscious from my own buying that there was not a lot of Intel to go. There was a ton of Dell (DELL:Nasdaq) to go, and there was a lot of Sun Microsystems (SUNW:Nasdaq) and Applied Materials (AMAT:Nasdaq), as well as massive amounts of Lucent (LU:NYSE) and Cisco (CSCO:Nasdaq). But Intel seemed to be way overdone. I wrote that on the site at the time.
Nevertheless, it was still breathless. There was a moment at $122 in Intel where my screen said Bid 122, ask 122 -- known as a "locked market," meaning that you could buy or sell Intel at 122. But the reality was at that moment you could buy Intel at $121.75, lower than where it was being bid for. That's the cross market phenomenon.
I have been taught that when the market is so heavy that it gets crossed, that's your chance to strike and strike hard. Unless Intel is about to issue a profits warning, that's a ridiculous state of affairs -- and it is time to take advantage of the frenzy and be contrarian. If it were a boat, there were too many people on one side, and it was time to run to the other side.
The problem with this thinking is that if the overall market is about to crack, you could find yourself overcome by more sellers. But in 20 years of trading, I have only seen that happen three or four times. All the hundreds of others times it has been the right bet. So you have to make that bet.
I was not alone. At 1 p.m., someone came in and bought calls on Intel. Then someone came in and bought Nasdaq 100 index, or NDX, calls, which Intel is a part of. The stock rapidly rose to $124, where the sellers had been. But they did not come back. Then the stock flew to $126 immediately. Like a vacuum. Just whoosh -- right through where it had been stalled.
That was a tell to take some Dell and Cisco and the other NDX players, because if one is strong they all might be strong. If you disagree with this thesis, please check my four-parter on the Oct. 8 bottom, the Cramer bottom, my wife calls it, meaning it was caused by my own selling! (Humility isn't a bad thing.) All of these stocks bottomed within minutes of each other.
For the rest of the day, Intel, which was the driving influence behind the selloff, stemming from Merrill's call Thursday, held in, and that was the anchor this market needed to rally. The NDX tried to rally big, but, as my columns on Friday showed, it did not have the horses. Nevertheless, barring seriously negative news over the weekend, the market might have been poised to ramp if there were any good news on the horizon that could defeat the negative Intel-SCI-Newbridge-3COM inspired selloff.
Why do I think that? This market has no short-term memory. If the last guy out says SCI Systems (SCI:NYSE) stunk, then everybody who has anything to do with SCI trades down. But if the last guy says SCI and Newbridge Networks (NN:NYSE) and 3COM (COMS:Nasdaq) and Intel stunk, that's pretty much everybody, as those companies include semiconductors, personal computers and telecommunications equipment. In fact, this thinking was so persuasive that people started buying cyclicals because of the following logic: "Okay if tech is bad and it is a high multiple, I will by cyclicals, which are bad and have low multiples." I know this sounds simplistic, but that's a pretty accurate reading of the market. It certainly isn't because the cyclicals are doing well. I was on enough paper, chemical and materials conference calls in the last week to know that industrial America away from tech is doing terribly, no matter what CNBC's guests might be thinking.
But what happens if the Goldman Sachs technology conference puts the 3COM, SCI, Intel news in a different perspective. What happens if we learn that Advanced Micro Devices (AMD:NYSE) just screwed it up again and there is no price war? Do we now get to buy Intel 17 points from its high, knowing that AMD has no competitive product to offer in 1999 and 2000, therefore making it more likely that Intel makes its numbers, and not less? Do we discover that SCI simply lost some low-margin business from Hewlett-Packard (HWP:NYSE) because HWP doesn't want to make low margined products any more, which is the way I am betting? Do we discover that 3COM is getting its clocked clean by Cisco and that's good for Cisco? (Again how I am betting.)
In other words, do we discover a different context for the selloff, one that allows us to buy some stocks much cheaper than they were despite IMPROVING fundamentals? That's the bull case that I think took hold Friday afternoon as we got closer to the Goldman tech conference.
Does any of this matter? I mean can't you just own Intel and Microsoft (MSFT:Nasdaq) and forget about all of these shenanigans? Of course you can. But let's remember how I think. If this were sports, can we forget about everything until the playoffs? Sure, absolutely. But if you are riveted to the action can you figure out that the Pacers or the Knicks are more likely to win than if you pay no attention to the regular season? I think so. TheStreet.com is predicated upon that belief.
Ahh, the purists out there might be thinking, this isn't sports, this is Money, and any analogies to sports cheapens the whole affair. To which I say, as I have always said, anything that allows you to understand the market better, including analogies to sports, war, life and games, is worth doing. And, to take it a step further, the purists would prefer you not to learn, so they can continue to dominate, something I hated when I was cracking into the game, and something I can now do something about.
So, anyway, I thought Friday was pivotal. I thought the market got too far down and that it held -- and with good news, the NDX will come roaring back. If we don't get good news, I know I will take a beating. I have taken one before, and will take many more. I don't love beatings, but they are part of making big money -- which is something I like to do.
Guess we will find out awfully soon. The Goldman conference begins Monday. To me, the bet had to be made when those markets crossed Friday to get the maximum bang to the upside.
Remember, identifying why markets bottom, intraday, intramonth and intrayear is the key to serious outperformance. On Friday we had a textbook bottom, cross markets and all. That's a good sign for the bulls and a bad one for the bears.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication, his fund was long Hewlett-Packard, Intel, Microsoft, Cisco, Dell and Sun Microsystems, though positions can 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.
|
