Washing Out the Sellers

Understand the theory of capitulation. At market bottoms, the best stocks get taken out and shot. Recall the April/May bottom: Right at the end, the second-to-last week of May, they got to Cisco (CSCO Quote). The networker had held up splendidly because people felt they could hide there. And why not? Business was smoking.

Chartists among you, when Cisco held like a stonewall (yes, Civil War fans, John Stonewall Chambers was still there when the smoke cleared), at the 50 level in May after a vicious and quick decline, that was the signal we could start to buy for more than a trade.

Keep in mind this is really only day two of the Sun Microsystems (SUNW Quote), EMC (EMC Quote), Oracle (ORCL Quote) selloff. In May, Cisco went down for what seemed like eons but was really about a week. When it was finished, we had finished the selling. I think the same capitulation is coming about here. It is positive. It is crescendo-like. It has the feel of, "OK, they have gotten to everybody; we are now through the worst of it."

We are further along than we were any time since the September selloff began. That makes me more bullish. That's what has to happen. Those who think I am nuts to feel bullish in the face of the collapse of great stocks like Sun Microsystems, Oracle and EMC, remember this: We need to wash out the sellers. We need to have all the bulls who think they can hide in high-multiple stocks be slaughtered. We need them as burnt offerings.

I smell smoke. At last.

Random musings: Those who think that you have to wait to see EMC, Sun Microsystems and Oracle no longer in my disclosure to buy them -- don't go there. We scaled these stocks back dramatically, so we are simply holding on to our nontrading stock. That stock doesn't come in for sale as long as the fundies stay in place. We think they are.