Big Players Are Bullying This Puny Market

"I think the collapse in the commodity stocks shows a worldwide recession."

"The decline in oil and oil service stocks, far more severe than the decline in the commodity, bodes for $80 oil and gas."

"Without a hurricane hitting rigs, the companies involved in the servicing and maintaining rigs will have severe earnings declines, at least according to their stocks."

These are three perfectly acceptable analyses of the action in the Oil Services HOLDRs (OIH - commentary - Cramer's Take) and in the oils in general yesterday in light of Gustav's failure to do any real damage and a continued expectation that economies around the world are slowing.

It's just that they are false takeaways. The single most material issue for the stocks -- not the companies -- was the collapse of Ospraie Management, which blew up and got blown out and took a ton of stocks down with it. The fact that this market is thin, that lots of players clearly knew this blowup was coming, and that the fund was no doubt leveraged up the wazoo (as all desperate managers tend to be) exacerbated the declines perhaps two- or threefold.

The funniest thing is the consequence of the decline that might have been set off by Ospraie. Take National Oilwell Varco (NOV - commentary - Cramer's Take), which is one of the oil service companies with tremendous visibility even if oil goes to $70, and is actually a big beneficiary of the coming collapse of steel prices. NOV, presumably a part of Ospraie's holdings, fell so swiftly that it then took out its chart support level, which then made it vulnerable to another level of selling, which then took it down almost 10% (I know, I bought some there).

Panicked sellers jettisoned NOV and the others -- believing, of course, that more, bigger sellers were on the horizon. I posited a piece yesterday saying, "Who in heck would be selling at these prices? " We now know the answer.

There's no denying that a big collapse in oil and natural gas is upon us again today. But there is also no denying that the stocks were forced down hard by this closure and failed to bounce even as oil bounced midday.

Ospraie is a reminder of what's really going on out there: hedge funds liquidating and money being pulled out and redeployed in a market that simply can't handle these disruptions. It is important to recognize that, at times, there are other forces at work either besides the fundamentals or that take the fundamentals to an extreme of ridiculous proportions. That's what we got yesterday.

Random musings: What are these newspapers doing?: "Despite Lower Oil Prices, Little Relief for Consumers," says The New York Times. With natural gas falling to roughly half where it was a few months ago, consumers only need to hook up natural gas and get rid of oil to save a bundle. How is that "little relief"?

At the time of publication, Cramer was long National Oilwell Varco.

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