Cramer Says Retests Are Not Fun

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Where is it written that re-tests are a barrel of laughs and everybody goes home feeling great about what they bought? Where does it say that the plunge back to the depths of the ugly October sell-off is a bloodless exercise that finishes with a two-minute "this has been a test" warning from the Civil Defense Department, allowing everyone to start the frolic of a year end rally?

Retests are brutal, typhoon-like affairs that shake even the firmest hands on the till. A shakeout like we are having right now should require the nervous nellies among you to ask your deskmates to bind you to the mast so you don't jump overboard in the stormy chaos.

Funny, no matter what, things always look worse during the repeat than they did on the first Tsunami. You think '87 was any different? I remember trying to keep my fingers in the dike of

Gap

and

Limited

in December of 87, and then discovering that, indeed yes, consumer spending had gotten hit by the Crash. Hoohah, joke's on me! I've got the battle scars that come from creating a lifetime bottom in Gap before a ten-fold move because I failed to lash myself to the mast that time. Boy, do I wish I could take those sales back. But at the time the relief I felt from cashiering Gap and Limited was as soothing as what giving up must feel like when a struggling, exhausted shipwrecked soul lazily sinks into the deep, not knowing that land was within a few hours drift.

How can I tell that this time the retest will hold? Oh, please, that's the crystal ball thing again. Mine's in Washington at the

Smithsonian

with my eldest daughter. Before she left the Trading Goddess insisted that we would have to have the retest, and we are having it. Better than saying we are off to the races. She's not infallible; neither am I. I just know that when you sell off as we have countless other times there's lots of nailbiting, lots of anger and people start getting pretty visceral about their losses, just like now. Heck, I saw some chairs, tables and in-boxes flying through the air at my firm, and they weren't uprooted by any storm. I take solace in spotting patterns of behavior manifested while making previous bottoms, and I see them now.

Even my e-mail, a kind of fabulous bellwether of emotion, has taken on that kind of sour edge to it, with old friends like those in the

Motley Fool

chats losing their tempers because I commented on the obvious decline in the disk drives. (Aside: Do you think I want these things to go down? Do you think I am short them and I am secretly gleeful that others feel the pain of a halving of

Seagate

while I reel in an award-winning catch? I got bloodied too, but I got out. Hey, don't blame me, I even bought a computer with a Western Dig drive last week. I'm doing my part.)

What happens now? The scaredy-cats get spooked by the massive mutual fund selling, which continues for most of this month, and they capitulate precisely where they should be buying. The coolest people in the room take over and they bid down quietly in places that look like where stocks held those two vicious days in October. By my rules, a third of the stocks will hold above those levels, a third will retest and hold and a third will just plain fail. I mix my bids between the two former categories and I avoid the third as if it were Bubonic. That way, if I am Wrong, I can live to play again.

I don't offer individual investment advice, but I can offer moral support. Everybody -- except the lone short-sellers who have had a pretty rough time of it these last 15 years -- is feeling down in the dumps. Everybody thinks they have blown it. Everybody is scared. Take the emotion out of it. Stop swearing at

KLAC

. Quit blaming

Cat

. Get off

ASMLF's

back. These are just stocks. Find a couple of companies you like and circle the wagons and bid down. And keep a cool head. I've never seen a lot of money made by hot, out-of-breath panicking weak players desperate to end the pain. I've seen an awful lot of money made by icemen.

I'm turning the air conditioning on, opening up a nice cool bottle of

Poland Spring

, and bidding quietly to take advantage of those who must rid themselves of pain at any price. That price is my price.

*********************

Random Musings

: Doesn't it just burn you up how smart the market is? I'm looking at the new highs list this morning and I see

Great Atlantic and Pacific

. then I check the charts of

Safeway

and

American Stores

and, well, what do you know, talk about totally domestic stocks with no earnings risk. And here I am trying to call the bottom in KLAC-Tencor! Remember: avoid the battlegrounds. I mean, is there anything more placid than a U.S. based supermarket chain?

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. 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 welcomes your feedback, emailed to

Jjc@Jjcramerco.com.