Tinder for a Lasting Rally

Jim Cramer

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My conviction about what happens between here and year-end has nothing to do with the fundamentals. We know the fundamentals stink. Heck, Intel(INTC - Cramer's Take - Stockpickr) and Motorola(MOT - Cramer's Take - Stockpickr) and LSI (LSI - Cramer's Take - Stockpickr) and Xilinx(XLNX - Cramer's Take - Stockpickr) didn't tell you things were great. They told you things are terrible. If they get more terrible, the stocks could go down a bit more. They have, however, traded at such low levels, that they attracted some serious institutional buyers. Those levels, if reached again, will bring out buyers, not sellers.

No, my conviction level comes from other years where I battled the longs for too long. Years like 1994 and 1998, when I failed to cover my shorts into the weakness of November. Years like 1990, when I failed to see the financials bottom in time and stayed short some of the highest-quality financials into a Fed ease.

My conviction comes from the pain seared into me as I tried to tell myself, "The buyers are wrong. They know nothing. They are stupid." In fact, I often fantasize what I would have written about 1994, say, if TheStreet.com had existed at that time. It would have gone something like this:

Moron buyers took up Goldman Sachs(GS - Cramer's Take - Stockpickr) three points today, despite increasing evidence that this quarter is shaping up to be a very tough quarter for the brokerage. Sure, the Fed might ease, but until the Fed actually does ease, Goldman should be going down because of the possibilities of disappointment.

Or, I might have written this about Motorola:

Despite increasing evidence that Motorola is falling apart, people continue to buy the beleaguered semiconductor and cell phone manufacturer. I am shorting them all they want, because I am confident that when the quarter is reported it will be even more disappointing than anyone realizes. I am shorting Nokia(NOK - Cramer's Take - Stockpickr) too, because what is bad for Motorola surely must be bad for Nokia.

Here is today's version of what I would write.

Buyers looking ahead noticed that, despite the Goldman Sachs estimate cuts, when the Fed eases, brokers explode. They wanted to get in ahead of when the Fed moved because to wait for the move is to run the risk of missing some easy gains.

Increasingly, buyers are betting that the problems at Motorola are being contained to semiconductors and that, if they can somehow lower the cost of production or reduce inventories, the worst maybe over. In fact, it appears that the handset business is quite good now for Motorola, meaning it must be just flat-out terrific for Nokia.

You see, I know the mindset of the down-and-out mutual funds too well. I know the mindset of the Fed ease too well. I want you to understand why things that might seem to be counterintuitive are actually totally intuitive -- if not downright intelligent -- given the past moves of the market. (Remember this action is the flipside of when you wrote me and said, "Isn't it ridiculous that Xilinx is going down, despite all of this good news?" Stocks anticipate the downside well ahead of the downside and stocks anticipate the upside well ahead of the turnaround.)

Nothing is more frightening than staying short or being uninvolved in a year-end rally. Nothing feels more like a train pulling out of the station, except the first two days of a New Year, which always feel terrific to me no matter what. I have been making the rounds of my friends anxious to well-wish me on whatever my new career looks like. To each person I suggest that the bear market may be over and we could be entering a new bull phase that could drive us to dramatic heights for everyday stocks once the Fed eases. People look at me like I am absolutely nuts.

Just makes me feel even more right. As does the action in these so-called broken tech stocks. That's bullish action coming from short-sellers covering, value buyers saying, "I guess this is my chance" and momentum guys saying, "I better get in and make a couple of good-looking charts before they take the money away!" That, my friends, is genuine tinder for a lasting rally.

Random musings: Are you hungry to learn? Do you love working with personal computers and talking stocks? Are you willing to do research and grunt work endlessly? I am looking for a research assistant with brains and stamina to keep up with me in my new job at TheStreet.com. Email me at cramer@jjcramerco.com and let me know. We can't pay what Morgan Stanley pays (at least until we are as profitable), but I promise you the learning experience of a lifetime.

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