Beware the Forced-Selling Effect

Here we go again: a dramatic bounce-back in oil and gas after a furious and forced selloff. Just incredible.

Some of the stocks, like Apache (APA - commentary - Cramer's Take), are soaring. Others, like National Oilwell Varco (NOV - commentary - Cramer's Take) and Devon (DVN - commentary - Cramer's Take) are giving you huge bounce-backs. XTO (XTO - commentary - Cramer's Take) and El Paso (EP - commentary - Cramer's Take) are up -- are they simply not owned by hedgefunds?

I have to say, this pattern is reminiscent of every other forced liquidation I have ever seen. The margin clerks come in and demand collateral by 2 p.m., and the selling goes in earnest in the most heavily attacked groups.

The rest of the market freaks out and you get what we have today even as the proximate cause, the decline in the minerals and commodities, stop hurting the market.

It is the same old story, but unfortunately, without knowing when the forced selling is completed, you just can't anticipate a bottom.

And that's why any buying of these stocks, if you think a bottom is upon us, must wait until midmorning when we have all of that selling that has nothing to do with the companies and everything to do with raising cash.

Random musings: A word on the Wells Fargo (WFC - commentary - Cramer's Take) offering that Bill Gross alluded to when he said he wasn't buying anything: It was a $1.75 billion hybrid deal, marketed to institutional investors not retail investors. The deal was priced at 9.75%, and it traded up from par immediately. Bill's dead-on in his newsletter, but I thought I should make it clear that there were institutions that snapped up this piece of paper that he did not buy.

At the time of publication, Cramer was long Devon Energy and National Oilwell Varco.

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