Bulls Bullied by Program Trading

The way the bears humiliated the bulls yesterday reminds Cramer of an old schoolyard prank.
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Remember that schoolyard game where you crouch behind some kid while your ally pushes the chump over backward? Remember how the startled mark would turn all crimson and be embarrassed and everybody would laugh at him?

That's how the bears made the bulls feel yesterday. Humiliated.

What makes for such humiliation? Perhaps that the

Dow Jones Industrial Average

, which is increasingly a relic in this tape, kept rolling on, even as the

DOT

dropped over 10% and the

Nasdaq

fell nearly 3%.

And, like the toppling in the schoolyard prank, the decline those indices experienced felt forced, almost artificial. Like they too were pushed. Pushed by programs meant to take them down.

Periodically, I will refer to program trading's downside as a reason why the market falls. Yesterday, there was an incredible amount of put activity all day in the indices -- perhaps triggered by

Intel's

(INTC) - Get Report

poor performance or by expiration Friday -- that eventually translated into a disastrous last-half-hour selloff.

Again, let's go over what program means. That means someone's selling something faster than buyers care to buy, or buying it faster than sellers care to sell. That means the machines are spitting out orders that can't be digested.

Any time I go in to buy 5,000

Microsoft

(MSFT) - Get Report

at 87 and get an 86 report, I know the mechanical sell-side programs are at work. Any time I try to buy

EMC

(EMC)

at 126 and get a 125 report, I know the programs are at work. The selling is too automatic, too stupid, to be motivated by fundamentals.

That's why I was on the buy side of these names. To be joining the selling simply because it is vicious and ugly is not my game. I understood the Net selloff yesterday. The griddle got too hot. I also understood why some of the chip stocks, as well as the boxmakers, would be weaker off of Intel. There was a lot of good news yesterday in banking and tech, but by the end of the day, the good news didn't seem to matter at all.

To me, good news always matters. That's why I was buying, not selling, the quality financials, drugs and nonboxmaker tech. That's what I will be doing again today.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long EMC and Microsoft, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.