Flu Panic Led Shorts to Lean too Far

Did the short-sellers go nuts on swine flu and presume that we had something out of Stephen King's The Stand on our hands? Did they think that somehow this pandemic was going to affect the earnings of Kellogg (K - commentary - Cramer's Take) or Exxon (XOM - commentary - Cramer's Take)? Or maybe Wyndham (WYN - commentary - Cramer's Take) or Visa (V - commentary - Cramer's Take)?

Judging by the powerful rally in the futures, someone needs this swine flu to flare up more than it has, because right now the short bet's not working, and you have to believe it isn't just the better-than-expected this or that that has the futures motoring here.

Now, there are plenty of reasons for the markets to be going up -- personal consumption's good, Japan had some better-than-expected numbers, we are seeing a step up in Chinese stimulus -- but there's little doubt in my mind that the remarkable lift that we are now having has to do with some major bets that the world's GDP would be crushed by the swine flu.

What's amazing about this one is it has created a bizarre confluence that has simultaneously lifted the soft-goods stories -- General Mills (GIS - commentary - Cramer's Take) and Pepsi (PEP - commentary - Cramer's Take) (although not the drug stocks, which remain in massive purgatory) -- without depressing the red-hot industrials or techs. It caused people to short the oils and minerals, betting on reduced world economic growth and a bulging of inventories -- especially oil -- but the equities didn't comply.

These are the kinds of behaviors you get when you have too many people leaning the wrong way, and that's exactly what I think is happening right now.

I don't know when it will end, because the bets can't be that massive -- there just wasn't enough time to put them on. But people got this wrong, big-time, and until the flu gets totally out of control or the bets are covered, there's a tremendous bid underneath this market at all times and we don't need much to send us higher.

Random musings: There are tons of real beats out there. I didn't expect Owens-Illinois (OI - commentary - Cramer's Take) to do that well, for certain. ... Dow Chemical (DOW - commentary - Cramer's Take) obviously had a lot of fat. ... Everyone's saying now that April's been pretty darned good. ... Taiwan Semi's (TSM - commentary - Cramer's Take) a monster, and a great play on China. ... Remember that while everyone is fretting about the banks, a lot of deals are getting done. ... When I look at the commercial real estate problems, I think they have more to do with the prices at which deals got done than they do with vacancy rates, which are holding up very strong. It's all balance sheet, not business. Very different from the gigantic overbuild of residential housing. ... Somehow the debt-holders are getting the blame for Chrysler. Disappointing that no one in the administrations fingers the unions...

At the time of publication, Cramer was long Visa, General Mills and Pepsi.

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