Understand the Market's Irrationality

People, people, chill out. The market's not nearly as rational as you would like it to be. It is entirely possible that the market can rally and rally strongly. Yet you should be selling, not buying. In fact, it is entirely possible that the market shouldn't be rallying at all, that things are no better out there economically -- yet it rallies anyway.

That's where we are now.

It is very true that the fundamentals in tech haven't picked up. It is entirely true that the banks are not out of the woods yet. But if we get a Federal Reserve cut, the banks will do better. We haven't learned any new bad news about tech for some time, so the market romps.

When we started TheStreet.com, one of our bedrock principles was that there occasionally can be divergence between a company fundamentals and the stocks themselves. There can be animal spirits that divorce the stocks from the companies. That can go on for some time. Does that mean you shouldn't take advantage of the disconnect? Does it mean you have to be pure and ignore the rally?

No, you have to be opportunistic and recognize that things can be crazy and that you can profit from them.

Let's go back to Conexant(CNXT Quote - Cramer on CNXT - Stock Picks). I said on my radio show Friday that the stock is due for a pullback (click here to listen to a replay of that show). But I wrote this morning about the reasons that pullback isn't happening. Does that mean it isn't due for a pullback? No, it means that the animal spirits have taken over and the stock is going places, short-term, that it probably shouldn't go. If I could trade around Conexant, I would be doing so here -- letting some go in case the stock and the market "quit."