We Rally Like This When Shorts Go Too Far

See what I mean about being oversold? Why does it happen like clockwork? It's mostly because the shorting was so easy and so lucrative that the bears, once again, overextended.

So, let's think of it micro style. You get a fiasco like Lehman (LEH - commentary - Cramer's Take) that should send the stock down 5 points, and it doesn't go down much at all because it is so heavily shorted.

Now, if you are short a stock and it doesn't go down on the holy grail of a CFO firing, what do you do if you are short Goldman (GS - commentary - Cramer's Take), knowing that people spread rumors yesterday that it would announce a hefty charge? What do you do with Morgan Stanley (MS - commentary - Cramer's Take) down a quick 10 but not having Lehman's problems?

You panic.

That's why I am always so attentive of the oscillator, S&P version. It is a measure of overreach, but the longs and by the shorts.

And the shorts have clearly overreached.

Hence the rally.

At the time of publication, Cramer was long Goldman Sachs and Morgan Stanley.

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