Without the Shorts, the Bulls Are in Trouble

Bulls beware. You may be losing the most important thing you have going for you, and it isn't earnings or interest rates or multiple expansion.

It's the short base. Right now, after the absolutely absurd and totally mind-rocking Fannie Mae (FNM - commentary - Cramer's Take) debacle for the shorts, there's an existential crisis that's being resolved by covering. Put simply, what's the short side worth if you can have such a home run, fundamentally, like the magnificent shortfall, dividend cut, guide down and equity offering by a major liquid company and yet still lose money shorting it?

That's a quadruple fundamental win, and a trading loss? Four for four and still no runs? So what's the point? And how do you stay short a homebuilder when you get a horrid number like DR Horton (DHI - commentary - Cramer's Take) delivered, and the stock doesn't go down? That's incredible. The only way they made the cash flow was to "give away" houses?

Or Beazer (BZH - commentary - Cramer's Take) -- they get a default notice. Isn't that the holy grail of the short side? Darned $11 stock is only down 21 cents!

I know when I was shorting heavily and I saw these defeats, I would say to my staff: Cover everything that moves, we can't make a dime doing this.

Classic groupthink, so everyone does it.

Next thing you know?

We get hammered on the long side. Why? Because everyone covers at the same time. That's what I think happened yesterday afternoon and this morning.

Given that there is a phenomenal increase in the number of bulls -- that number was down forever, so I know I got comfortable with the long side -- and the plus-4 reading on the oscillator I follow -- a point away from the bull danger zone -- I think there's reason to believe that a more treacherous moment is coming.

Ultimately, I like the tape. But I do not want to lose the shorts. They are what makes the long game so much safer.

And I sense the massive cover is on. There may be some pain ahead for those who like the market.

Random musings: Quanta's (PWR - commentary - Cramer's Take) another great utility play, and it is on fire after disappointing for awhile. People went nuts off of Broadwind Energy (BWEN - commentary - Cramer's Take). There's no catalyst other than the gradual admittance that wind is terrific. ... The fretting over a small division at Foster Wheeler (FWLT - commentary - Cramer's Take) is a sign that people are looking for reasons to sell. Sometimes they just aren't there.

At the time of publication, Cramer was long Foster Wheeler.

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