Anatomy of a Rally: Part 3

Editor's note: This the final installment of a multipart article. Please check out Part 1 and Part 2!

Sure I come to play every day. But I also have constraints, business constraints that aren't going to go away.

That said, my nose smelled something. So did Jeff's and Todd's and Matt's. We had all worked late Thursday night to take stock of the great companies that were reporting that evening. We had the mental tote board of how they were doing.

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PMC-Sierra? Perfect, just perfect. Gateway? (GTW:NYSE - news - boards) Really much better than expected. Really good quarter from Veritas (VRTS:Nasdaq - news - boards). Juniper? (JNPR:Nasdaq - news - boards) Jumpin' Juniper Jehoshaphat! Get out of town with that revenue growth. A fire that raged faster than tinder whisked through Mandeville Canyon on a hot fall day with Scirocco winds blowing. Raised the bar big time. Let you take numbers up galore! Coupled with the upside surprise from Corning (GLW:NYSE - news - boards) and the terrific quarter from Applied Micro Circuits (AMCC:Nasdaq - news - boards), and, hey, we have something here. We have the fundamentals.

Remember, this is a market that seethes and moans one day at a time. It is a market that embraces with wild, reckless, animal enthusiasm and then shuns and despises as quickly as a three-year-old with a Beanie Baby ripped from her arms. You put together five good conference calls, five calls where numbers get raised, and you'll wonder where the Yahoo! (YHOO:Nasdaq - news - boards) went.

Ahh, oil can be a sideshow.

That left the numbers Producer Price Index and retail sales. When they came out I know I misread them. Here was all you needed to know: Those who thought we were about to go into a recession took a look at these numbers and decided we were still very much on course for a soft landing. The golly gee camp was back, the naysayers banished, punished, doomed to walk the face of the Earth that Friday with signs saying, "I am too negative. Hang me."

Initially, the first move was a fake-out, as always. Let's use Juniper because in this market, Juniper is the ultimate high-octane proxy. It is all at once the single most overvalued, single most well-executing, single most momentum-oriented company in the universe. I can tell you that as Juniper goes, so goes the market.

So consider this: Juniper opens at $202, up moderately from the close the day before. That's bullish. Not up $15 from the get-go. Up a reasonable amount. Let's you in. That's a good sign, not a bad one. The pattern had been that the stock opens up too high and everybody who buys gets their butt kicked.

Then, of course, it takes off, on a straight line, as big mutual funds who have heard the Juniper story and can't believe they can still get in at the same price as before the story, rush in and take it to $210.

Now, here's where the day hung in the balance. What does it do from that level? In overnight trading the stock had gotten up to $210 during the conference call and then ran into a veritable phalanx of sellers. Was the phalanx back?

Sure was. With a vengeance. And the stock started down, quickly as the shorts rushed in, the daytraders with their super quick, level 2 trading piled on and the weight just cascaded on the stock.

So, $210, $209, $208, $207 -- I found myself thinking this one seemed like every submarine movie I had ever watched. Would "U-Juniper" hold at where it came in, or would it explode from the pressure?

How important a tell was Juniper? I had two whole screens devoted to its growing graph chart watching, listening, braced to pounce if it held.

At $205 it stayed. It bounced back to $206 then back to $205; $205 again; $205. $205, $206, $207. It was holding.

And at that point, I knew this day was going to be a good one. I didn't know, however, how good, because that would be determined by the $210 wall. We made the easy money back to there, but jettisoned because we knew that supply was just too thick at that level.

It was a misjudgment that kept us from making the kind of money that would have, could have and should have been made Friday. Because Juniper burst through $210 like a hot knife through butter. Just ripped up through it.

From then on, there was no stopping this day. The SOX index, also a leading tell, burst through resistance. Oil, which was sitting down 35 cents, suddenly nose-dived lower. The bonds, which threatened to unravel off a high PPI, stabilized and turned higher. The nontech growth stocks cascaded, freeing up more money to chase the hotties.

At first, the hedgies read it right. I could tell they wanted to play. But then they sold what they bought and up 5% they shorted and shorted and shorted and shorted some more.

When it didn't come in, one by one they broke ranks and started the fever-pitch buying that lead to an additional 3% gain on top of the monumental 5% jump. Then everybody piled on. The daytraders, the Janus types, the Fidos, and, of course, the short-sellers who capitulated massively right into the maw of buyers. In fact, the last half hour was 100% total capitulation on the shorts, whose time frame can be measured in nanoseconds and whose threshold for pain mimics that of most six- year-olds at the sight of a hypodermic needle.

What should have been a half decent rally turned into a bull market, a glorious compressed one day bull market that left most participants speechless.

What happens on Monday? To even ask that is to miss the whole point of this piece, which is to point out what can happen in a given day. And the truth is that in a given day you can now have a lifetime's worth of performance -- if you open your eyes and minds to it.

Will you next time? I know I will.

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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 .