Cramer's Rewrite of His "What Matters in This Market?" Piece

Sorting out some trading jargon.
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(I am now besieged each week with requests of what to re-write. I picked this one because it had the most trading jargon, so it needs the most interpretation.)

As is typical when things get this hot, the market makers,

(when you hear the term market makers, you should immediately be thinking Nasdaq. A specialist makes the market in listed stocks.)

none of whom has an ounce of stock

(this mean that they don't have any inventory. They are in the analogous position of a

Home Depot

(HD) - Get Report

that has no shovels in a surprise Valdosta snow storm)

coming in today -- have to contain the market by making us pay up huge for our first purchases.

(The term contain is not a real term, it is a term I use in my office. No one is really trying to keep the market down. But if you don't own something, and you want to sell it, you must quickly move the market to a level where natural sellers -' as opposed to artificial, or short-sellers -- get interested. If you want to buy

@Home

(ATHM) - Get Report

, say, they will sell it to you, but not where it went out, as they are not altruistic institutions. They won't even sell it near where it went out. They will take up to some level where only a moron will buy it and an average Joe will sell it, or to a level where they feel safe to short it and then recover it after they have buried you. Whenever the market lights up like that, they have to do that. They can't lose their whole year facilitating orders.)

Remember, they see it too. They feel the heat of the buyers. Heck, they smell the breath and hear the footsteps. The specialists in New York and the OTC gang have to cool things off by doing so in this time-honored fashion. They have to take things up to where they can find sellers, because they can't lose their whole years in a morning.

(Exactly this occurred. The opening was brutal, If you took anything at those opening prices you got hosed. Even the stuff that got recommended. Then the market came in and some bargains developed. Only when the market is this superheated does patience get rewarded. The only things you could buy in-line, or right around where they went out the night before, WAS THE STUFF YOU DIDN'T WANT AND WOULD GO LOWER ANYWAY.)

Typically, what happens in these situations is people get discouraged. They kick out what they bought too high, others say, hey, at these prices, I have to boot, and still others say "looks like a mammoth top, I have to short it and make money on the downside."

(This is the so-called "reversal" that technicians look for. I think it is hogwash. I mean, in the end, the market closed up big. If you bet that

Cisco

(CSCO) - Get Report

was rolling over, as I saw many people betting, because it opened up high, you got your head handed to you by the end of the day. That's why it pays not to get discouraged by the reversal.)

All of these patterns are so ingrained that it amazes me every time it happens. So what matters? Again, what matters is what you have conviction on. If think

@Home

is in the early stages of a big, big move, so what. You hold on. If you think the whole thing is one big mania, then you boot. Same for

Yahoo!

(YHOO)

, or

AOL

(AOL)

, or anything else in the sector.

(It is these openings that are so tempting, that invoke all of what I call N.D., or New Discipline. This is the discipline to hold an @Home through these upside shakeouts. Think about it, that is what these stocks are doing. They are moving to some extreme level that allows short-timers to take profits but forces long-timers to think about evacuating the premises too. Remember this rule: When it is so easy to sell, you shouldn't. I don't want to lose some of these stocks longer-term. Short-term, I don't care about some, but I would have sold my

Broadcom

four gazillion times, because of these opening mark-ups. Maybe this time it would have been right. But I don't want to say goodbye to my tag-ends of a great stock, because I may want to revisit it on weakness another day.)

I try to play these things in a business-as-usual fashion. I don't pay up for what I have already; I pay up for a small bit of what I want to build, and I kick out the marginal positions that I am up huge on. I have one eye on the interest-rate picture, which is not pretty, and that causes me to worry. The only thing that could really hurt this bull is higher interest rates, and they certainly look like they are on the way. That is a new view of mine, and it has to be considered part of the equation. While we may think that the Net is the next big thing after electricity, we never want to lose sight of this dog-e-o bond market.

(I bring this up because we have all been trading in a rather benign vacuum since the Fed eases began. We have not really had to focus on the bond market, which is the big competitor to stocks. For you newbies, imagine at all times that there is capital searching for a home. One home is secure and steady but quite boring, and another home is wild, could get taken away, but could be the dream house. Some people are always going to want the former, especially when someone is standing over them wagging a finger saying, if you try to build that dream house and fail, you will lose everything. That's the bond market's siren. Remember what I said Friday about the dichotomy between Wall Street and Main Street. Wall Street deals with those who already have money and want to preserve it, but Main Street wants to create wealth. To create wealth, however, you have to take risk. For prolonged periods it does not seem like things are risky. I mean, think of it, what has been less risky than owning

Amazon

(AMZN) - Get Report

for these last 100 points. And just this week, those long bonds "lost" a ton of money. But it won't always be like that. On Wall Street, the bosses are worried about liability. They don't want people coming after them saying they did not understand the risks. So why not just jam them with bonds, where the worst you can say is "hey, we didn't cost you anything." That's still another reason why I have always believed in a do-it-yourself method of investing for at least part of your money, if you have time. Wall Street is too worried about capital preservation, and mutual funds are too worried about diversification. Only you know what you want. Like the older fellow in Philadelphia who told me he wanted to be in the next

Microsoft

(MSFT) - Get Report

with

Yahoo

, you have to take your own counsel.)

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication, the fund was long Microsoft, Cisco, Broadcom, America Online, @Home and Home Depot, 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 by sending a letter to TheStreet.com.