David Faber

pop the

Commerce One


bubble? If he did, that would be more than any bear has been able to do. Let me explain what I think happened here. By way of comparison, I am going to use the analogy of






. I am neither long nor short these stocks. This may shock you, but I don't care where they go. If you own them, great. If you are short them, great. Don't bother me none. (Take that, those who think to write is to endorse!)

priceline had been super hot. But it ran into a mammoth amount of insider selling when various lockups ended. eToys, too, was very hot, but it too had a gigunda lockup expiration. In both cases, it seems that the insiders took advantage of the free-to-trade situation. That made these "tight" situations loose.

Let's walk through that tight-loose transference for a second. Many people had thought that both of these stocks were too high. They were priced for perfection. If there were any execution glitches, short-sellers believed that both stocks would get hammered and they could profit from the expected decline. As these stocks rallied higher and higher, the bears shorted these stocks aggressively, betting that they would drop and big money would be made.

Remember, when you short a stock, you have to be able to borrow it to sell it. That means you have to be able to locate stock. Both of these companies did not have enough stock registered for sale to meet those short-sellers' demands. So, frequently they had to cover their shorts during the dramatic run-ups as they could not provide the stock they shorted to the buyers. But the bears just kept returning and returning, betting on a big payday someday. (You can keep shorting and covering all of you want.)

eToys then hit some bumps. So did priceline, which is dependent upon airline traffic for some of its revenue, and airline traffic is down vs. last year at this time (Y2K). As the fundamentals became less rosy, the insiders simultaneously registered stock and sold it. That action "cured" the tightness and removed these short-selling buyers from the equation.

All of a sudden, you had no more short squeeze; you had analysts becoming critical, and you had insiders who wanted out. The short-sellers, smelling blood, put added pressure on the stocks by offering more short. Why not? The best gains are often right after the tightness has been cured.

And the declines were steep, fast and profitable for the shorts.

In fact, the gains became so outsized that bears started figuring they could make big money if they timed their shorts perfectly. One of these gambits involved Commerce One, which, like eToys and priceline, had a huge expiration of a lockup, some 20 million shares.

Of course the shorts didn't know whether all 20 million shares would be registered to be sold or not. But given the run-up, it sure seemed likely that a lot of it will get registered to be sold.

There was only one problem. Nobody, long or short, figured that B2B would takeover the market's imagination in a way that made tulips seem like gold bullion.

So, all at once, you had real buyers and individuals walking the stock up, with short-sellers providing a lot of the supply. As the stock continued to confound, the shorts joined in the buyers' stampede by trying to cover some of the stock before the losses became ruinous. This run was as close to the dreaded infinity that a short-seller has nightmares about.

Finally, with the shorts one day away from the promised lock-up, the stock went bonkers-up still again. The peak came an hour before Faber "broke" the news that every short-seller knew anyway, but maybe some of the long buyers didn't.

And the stock reversed.

As I had no idea what would make this stock reverse or continue to charge up, I avoided both sides, but admired the battlefield in the way that the Virginians brought lawn chairs to the Battle of Bull Run (an apt comparison).

But now the short promised land has been reached. The cuffs are off. There is only one problem: Unless you shorted this stock at 2:00 p.m. today, you are probably already history.

Will this stock be eToys? Will it be priceline? Here's an honest statement: Beats the heck out of me.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may 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