Short squeeze, perhaps?

(People love to read about these. A short squeeze occurs when individuals have sold stock they don't own and need to buy it back. These can be common in thinly traded stocks. But occasionally they happen with big stocks, and they can be breathtaking affairs. No one is ever quite sure whether the pressure up is a short squeeze or not. Buyers don't identify buys as short-covers, although they are required to add a "short" notation if they are selling stock without owning it.)

Despite what the talking heads are saying -- lack of follow-through, disappointing action, etc. -- everybody I know is focused on

America Online

(AOL)

and the bizarrely positive action of today's trading.

(At the time, I kept hearing and reading about Dow 10,000 and the advance/decline and the volume. I am not dissing these indicators. The market internals matter greatly. I like the game within the game. The other day, the

Sixers

beat some team at home, and I didn't give a darn about the final score. I had my eyes on

Iverson

. I have been at games when the

Bulls

were at their height, and I never looked at the scoreboard once. My eyes were on

Michael

. That's what this day was like. AOL was going nuts to the upside, and every trader was talking about it and asking about it. But the talking heads very rarely know where the action is. The action this day was on AOL.)

There were two great trades this year in AOL. One was to buy it ahead of when it was added to the

S&P 500

. The other was to sell it short when it was added, because the stock fell precipitously after the addition was finished.

(I know this will sound naive, but these additions to the S&P, mandated by Standard & Poor's but maniacally followed by the funds that index, create a kind of permanent havoc on the floor of the exchange. The imbalance is very hard to game. We all know something is going to be added. Is it up enough? Will it be up more? Are all of the funds going to buy? Will some wait? Will some come in ahead? Will people use the event to sell? There are so many darn variables it is a task that is just made for a high-speed computer. But it is all done by humans, trying frantically to figure out a price. That's why there is so much craziness. Nobody really knows where it will go out. On the day that AOL was added, there was an amazing amount of stock that had to be bought, and the "print" where it closed was divorced from all reality, up huge, almost 14 points higher than where it went out. If you owned stock, purchased in the last half-hour and sold it on that print, you made a fortune. Even better, if you did not own stock and you simply sold on the print, short, you could have bought the stock back down about 15 points almost immediately. I regarded this event as an artificial one that allowed you to make some money very fast, solely because the system as currently configured cannot handle these additions with any precision -- or justice.)

I am now theorizing that many people put on the latter trade last night after the S&P reweighted AOL, forcing the index funds to buy. They shorted the close, figuring the stock would return to 103, where it was before the rebalancing occurred. Certainly made sense.

(Many people remember that 160 print in AOL and drool about selling short on something like that. They thought they had their chance this week, when the S&P announced that because of the merger between AOL and

Netscape

(NSCP) the weighting of AOL would change in the S&P as AOL was now a bigger company.)

These shorts were shocked, as I was, that the stock didn't open down more today. We had to scramble to buy back the stock that we sold at a gain of less than a quarter-point. Not much bread there. But the action was way too positive.

(Real buyers, institutions that move stocks when they buy, came in and bought bushels of this stock. It was almost as if they knew that people were short it and they wanted to profit from the short. This does happen and has happened. It is so conspiratorial that I tend not to want to believe in it. But my friends who were short AOL sure thought it was happening.)

Others were even less swift. Couple that with some aggressive institutional buying, and you end up being squeezed like a Florida orange in a

Tropicana

factory.

Amazingly, no matter how high this stock has gone, the squeeze has persisted. We're talking concentrated pulp now, ready for the freezer!

(When you are short, it feels like there has to be a level that brings out supply. You keep thinking, ah ha, 115, that's got to bring out sellers. But it doesn't. So 116 comes and goes, then 117 and then 118. Suddenly 50,000 comes offered and three short-sellers glom onto it so fast that your head will spin. I chose to use the juicer analogy here, but a few years back I compared it with the mechanical rabbit they use at the dog tracks. The greyhounds are short-sellers. One time I went to the dogs in Monticello, Fla., (home of Jack Youngblood) for some real country dog racing and I saw something happen that sticks in my mind to this day. The mechanical rabbit fell off its perch and bounced onto the track. The poor greyhounds went out of their minds with joy, pouncing one after another on their once-taunting prey. That image always reminds me of how unsatisfying it is when you cover a short up 10, as this one must have been.)

I've felt the squeeze before. (Please see

Cramer Screams Through a Short Squeeze.) Sometimes paying up 10 is the only way to get out of the juicer.

(I referred to this piece because it just drove me nuts that my paranoia was not paranoia!)

Phew. AOL continues to be the roughest short in the business.

Random musings:

Congratulations to

Dave Kansas

and the entire staff of

TheStreet.com

on today's

National Magazine Award

nomination. As a print veteran, all I can tell you is I am very proud to be associated with any entity that has been nominated for one of these, the

Academy Awards

of the magazine biz.

(I write a heck of a lot for TheStreet.com, but TheStreet.com is not me -- it is Dave Kansas and all of his great editors and reporters. It is the fantastic staff that he has put together. It drives me nuts that the rest of the media seem obsessed with me while Dave and his gang just pump out great story after great story. I am sure the upcoming press will continue to highlight my involvement. It's just plain wrong. The honors go to all of the great people who really put TheStreet.com out every day. It must drive all of those hard-working people nuts that I get so much of the publicity. All I can say is it drives my wife and my kids crazy, too, and I don't want it anymore, either. I felt that way before it all turned so nasty with the Abelsons and the Times piece and the next half-dozen pieces that people are working on. I love TheStreet.com and I helped found it, but this award nomination should be a shot across the bow to all of our offline friends and enemies: TheStreet.com is run by Dave Kansas and I work for him, just like everyone else in editorial. And I am proud of what THEY have accomplished in such a short time.)

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication, his fund was long America Online, though positions 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 by sending a letter to TheStreet.com.