Anatomy of a Rally: Part 1

Click here for the latest from James J. Cramer.

Make no mistake about it, Friday's 8% Nasdaq rally was important, but not in the ways the strategists would have you believe. It was important because it might be the template for what I'm calling "24-hour bull markets." In this series, I want to analyze Friday's rally in the context of catching the next one, with a mixture of history, personal melodrama and prediction, so we can all get better at making money.

For a month now, smart people have been emailing me and urging me to call this market a bear market. They wanted me to verify what they saw on their screens, that this market was going down and was going to take everyone with it. They wanted me to make that case in the worst way, to validate the bearishness that surrounded the September-October decline.

And I wouldn't go there. I wouldn't go there because of one particular possibility: the potential for an explosion upward because of the negativity that would leave everybody who says "it's a bear market" on the sidelines, and "easy money" would be missed.

Understand that an 8% move may be, at times, all you get in a quarter. It may be all you get in a year. It simply must be caught if you are a professional. Or you don't deserve to be in the playoffs. That's not a harsh judgment. It's simply a decree. You have to take the dollars when they're offered. You can't wave your hands, or throw them up in despair and say, "I am a bear, I won't touch that." It's because of days like Friday that I never describe myself as either a bull or a bear; I am an opportunist.

Consider the importance of that statement. I am saying that to lump yourself into either camp can be wrong, because these are camps of time, not of performance. If you declare yourself a bull, I think you're doomed to lose 8% all week and then make 8% back on Friday. If you're a bear, I think you gain 8% in a week and lose it all on Friday. If you're an opportunist, you can sidestep or profit from Monday through Thursday and profit again on Friday. Because the velocity of the moves and the compressed time frame within which they now occur is something new and different and the strategists and investors and traders have not yet woken up to that fact.

Yes, the velocity of the moves. That's what I'm getting at. Because of new instruments that enable people to buy dozens of stocks with one push of a button, and because everything is automated to the point where people can get long millions of dollars of stock in seconds, invariably ahead of other, slower people who want to buy or sell, too, we cannot rule out the possibility of a compressed bull market in a matter of hours.

That, in a sense, is what happened Friday. Stocks from PMC-Sierra (PMCS:Nasdaq - news - boards) to Sun Micro (SUNW:Nasdaq - news - boards) put on moves that used to take weeks or even months to complete. In those weeks or months, it was possible for a strategist to go from being bearish to bullish and capture these gains. That's no longer possible. The moves happen too quickly.

Same for most mutual funds. They can't get in and get out fast enough to profit from these mini bull and bear markets. They have to make longer-term bets, because of their size, that call into question their basic viability in times like this.

Of course, understand that I'm expressing the concerns of a professional money manager; I am not drawing conclusions for the majority of the "investing" public. For the majority of the investing public, Friday was just another day, a reversal day that may or may not trigger more buying. For buy-and-holders, Friday was a totally meaningless event.

But for the millions upon millions of people who have come to look at this market as a day-to-day affair, people who follow it on the Web and on television, people who make trades electronically -- and there's no denying that through this topsy-turvy time there are millions of people doing so -- what I'm implying is a whole new world view for stocks. I'm suggesting that the game plan that millions of people have about the hazards of flexibility, as well as the great belief in doctrines -- I am a bull, you are a bear -- are just plain wrong!

Oh, I can hear the catcalls. The taxes, the taxes are just too great! Oh, come off it! The taxes on catching 30 points with a buy and sale of a thousand shares of PMC-Sierra in a day are great. But the gains are greater! And unless you are Deion Sanders or Derrick Jeter, you're going to make more money after taxes with that trade than anybody else will make before taxes at their job that day. That's the cold hard reality.

Or, "I have no ability to make those kind of judgments. How do I know what will happen over the short term?" Sure, that's a good one. That makes sense. But what I'm saying is, can you at least admit that an awful lot of money can be made this way if you get it right, and that getting it right is a distinct and honest possibility, especially for those who take the time to read sites like this? If you can't give me that, then move on. If you can, then read on, because I'm going to tell you the recipe for the next plus 8% day as it was baked on Friday, Oct. 13, in the year 2000. Clip it and save it, and take it out the next time negativity is canonized. Bookmark it in the recipe book and go to it when you see the same characteristics as we saw on Thursday. Because, if you bought 200 shares of Extreme Networks (EXTR:Nasdaq - news - boards) Friday morning when it was down a couple of bucks, and sold it Friday afternoon, you just made enough to buy a RealMoney subscription for life.

---

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may 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 send comments on his column to James J. Cramer .