Earnings, Earnings, Earnings

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Never forget what drives stocks: earnings estimates. When they go up, stocks go up,

wherever they are

. When they go down, stocks go down,

wherever they are

.

My

desire to buy the oil drillers after a nine-month bear market is producing some

good ideas and some excellent longer-term plays. But I simply can't pull the trigger beyond a quick trade because of the first paragraph of this story.

We often forget in the heat of battle why stocks move the way they do. So let's go over the anatomy of a stock's movement. Let's take National Gift Wrap & Oil Drilling, so we don't have to deal with the angry emotions of those of you who are long

Pride

(PDE)

this or

Halliburton

(HAL) - Get Report

that. Sometimes it pays to remove yourself from the real world's pain to understand price moves.

Let's say National Gift & Oil started the year at 40. It has now dropped to 18, as its core oil-drilling business has been hurt by the slump in crude. Book value is 12. The stock traded at 18 last in 1996, so it has erased all its gains for the last two years.

There are 10 analysts who follow National Gift & Oil. They are carrying between $1.80 and $1.50 for earnings for next year.

Every time one of these numbers is cut by any analyst, this stock will go down

. The market is remarkably

inefficient

when it comes to estimate reductions. Each time one occurs it will be as if no one had ever cut estimates.

Only after all of the estimates are reduced to levels that will be met will the stock stop going down. Only after estimates are reduced to where they can be

beaten

will the stock move up. Don't outthink this equation.

Merrill's

estimate cuts on the group yesterday knocked them over as if they were made of playing cards.

Companies understand this. Take

Hewlett-Packard

(HWP)

. One of the reasons I am optimistic I will make money on my Hewlett long eventually is that HWP has brought estimates down to where they can be beaten. That's how a bottom gets formed.

The drillers are dirt-cheap. They make no sense unless oil goes to $9. But the market says, "We don't care. We have to play by the rules and the rules say we cannot buy these stocks until all the estimate cuts are out of the way."

It is always like that. It is a valley that can only be looked through by the most tenacious investors out there. And the biggest, who have to get in before the turn. For everybody else, it's waiting time.

So the president delivered our

100 points all right, judging from the explosive rallies overseas. Is this a rally to sell or to sit through?

Here is what I will be looking for. If the secondary stocks start rolling, we may have something to hold onto here for more than a couple of days. If the Nifty 50 surges without any soldiers to follow, then I will play it until expiration and then retreat to the sidelines again.

So, I guess I will be watching the

Russell 2000

index, or RUT, for my guidance. Monday's bottom at the opening, where we successfully tested the Aug. 5 low and did not breach the 200-day moving average for the indices, is going to spark some real enthusiasm among the technicians out there. They alone can get this market up to 8800 without much problem. I know I wanted to see that big climactic selloff, that crescendo a la Oct. 27, before I committed big reserves. To make a huge bet right now is to believe that such a selloff is not necessary. I can't do that and be true to my discipline.

However, I can make a short-term trading bet that we have seen some sort of low for the time being. It would not surprise me if, given the huge number of out-of-the-money calls that could become in-the-money calls if short-sellers don't buy them back now, we ramp right through Friday's expiration. But I will not sink my cash into this market in any expansive way until we see more of a washout of the Nifty 50 than we saw.

Again, tech, retail and drugs all seem to have hit lows and have started moves upward. I will be watching the banks carefully today to see if they are bottoming. And, of course, all eyes will be on

Dell

(DELL) - Get Report

tonight.

Random musings:

The

Journal

just solved the conundrum of the German banks. How could they all be on the acquisition trail and also take the Russian hit? Because the Russian loans are guaranteed by the government. All of that doom and gloom for nothing! ... People still talking about how great that Colarusso

piece on

Globex

futures was. I recommend it if you haven't had a chance to look at it. ... My comments on

Kass: overwrought but cogent. The most telling thing in the piece is that the investors grew tired of waiting for the bear and took the money away. That's the real bad sign in the piece for this market. Nonetheless, even in the dark BladeRunner world of Kass, there will be opportunity and it is my job to find it.

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com.

At the time of publication the fund was long Dell and Hewlett-Packard, though 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 at

letters@thestreet.com.