Never Underestimate the Power of Estimates

Amazing, amazing week. Two weeks ago we left the office and said, "Well, it was nice while it lasted."

Everyone -- other than Doug Kass -- had decided that the Nasdaq in particular was going down for the count. I know it because someone on my Chairman's Club call this week wanted to know how -- and marveled at the fact that -- Doug could go all in on the Nazz bottom.

The answer is easy: expectations. They had gotten so low that we were home-free, particularly for the tech companies related to mobile Internet -- semis, LCDs, memory cards, amplifiers and so forth.

Every time we get a big rally, I mean a big one like this one off the bottom, it occurs because expectations finally got too low. It's always like this. My friend Steve Galbraith even documented it closely when he worked at Morgan Stanley (MS - commentary - Trade Now) running research.

That's what happened to Intel (INTC - commentary - Trade Now), IBM (IBM - commentary - Trade Now), Caterpillar (CAT - commentary - Trade Now), PPG Industries (PPG - commentary - Trade Now), VF Corp. (VFC - commentary - Trade Now), Intuitive Surgical (ISRG - commentary - Trade Now) and so many others.

Do not think this odd. Recall that you got a top when estimates were too high.

Estimates should never be underrated as catalysts to buy or sell. They are still the drivers and when estimates hit bottom, you can go very, very far. Remember, for the most part, estimates are based on earnings, not revenue, so the big-money trigger-pullers weren't nearly as depressed as the commentators that somehow it was all done with mirrors.

It was done with firings, made easy by all of this just-in-time software and great supply chain management that has been put in over the last decade.

Anyway, didn't matter. Firings worked. They worked because that allowed the companies to beat the numbers.

That's why we rallied.

That's why we can continue to rally.

At the time of publication, Cramer was long PPG and VFC.

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