How the Shorts Fueled the Tech Rally

Why did tech rally so viciously last week? Sure, it is possible to say that Cisco (CSCO - commentary - Cramer's Take) caused a rally. But the rally should have ended by the beginning of the week. Cisco doesn't have that kind of legs. The pin action can go only so far.

I think there was something behind the scenes that I have put together that makes more sense.

First, there were swirls for the last week from a multi-billion-dollar tech fund that went bust and had to liquidate. While these things are always secret, trading desks confirmed to me that supply was coming from one source.

The supply consisted mostly of the highest-multiple Nasdaq-100 stocks: Rackable (RACK - commentary - Cramer's Take), Citrix (CTXS - commentary - Cramer's Take), Network Appliance (Nasdaq - commentary - Cramer's Take), Qualcomm (QCOM - commentary - Cramer's Take) and the like.

In my old hedge-fund days I used to lean endlessly against a fund that might be liquidating. It was as close to free money on the short side as you could find. But typically you had to be sure that when the supply was exhausted you had to cover, because there is nothing proprietary about the short call. Everyone tied in has the same call.

I think last week's rally revolved around the hedge fund being liquidated and the shorts needing to cover.

Once the covering occurred, that was history. And the rally got started in earnest.

That's the reason for much of the rally.

At the time of publication, Cramer was long Citrix and Qualcomm.

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