Dow Jones

can still strut can't it? How does it happen, you might ask? How can a moribund market ignite for 800 points in two days?

Good question! It isn't easy.

Let me explain the recipe that was required for such a massive effort. It was one part short squeeze, as the trend has been to bet against the


for more than a year now, with it accelerating in the last three months. It was one part buyback, as many of the companies in the Dow have active buybacks because they think their stocks are cheap. It was one part pent-up demand for stocks with ridiculously low multiples, as money managers began to salivate at the prospect of leveraged buyouts and takeovers. And it was one part March expiration, which historically has produced some wild moves.

Each part played a role. You could never have this kind of move without all four parts, so let's explain the significance of each.

When a trend lasts for as long as the underperformance of the S&P, which trades similarly to the Dow in many ways, people get quite confident that the trend will continue. Even though there were studies which showed that the


and the Dow had never diverged this much before, as long as that was the reality, people played it that way.

The single best trade for the first part of this year was long


, short


. It generated a fabulous return and many people played it. (There was some rationale behind it, too, in that you could capture the earnings and revenue momentum of tech and hedge yourself against repeated



This was the money trade. That all unraveled this week when the two markets went, viciously, in the other direction. People who were short SPX calls or short SPX futures had to cover, frantically. The door was too small, though, because, once these stocks took off, real buyers emerged of the underlying equities, forcing the futures and calls on the futures ever higher. That led to a massive short squeeze of the largest stock market on earth.

It helped that, once the stocks started moving, the companies themselves stepped in to backstop the stocks. Companies can't move stocks up but they can ratify the movements by sticking big bids in once stocks have moved. So when

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is up four, Merck can be in there bidding and supporting the stock. As these blue-chip stocks moved up, the buybacks followed, making for a stronger market than we thought.

Meanwhile, the fundamentals, which may not be so hot if the Fed tightens, weren't so bad either. I think an article in last week's


about how airlines and other companies will begin to do leveraged buyouts if their stocks fall any lower really helped, as did the proxy for these stocks,

Warren Buffett's

fund, when Buffett suggested that he might buy back his own stock.

The jarring realization that there were no


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after Procter (except


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) also emboldened people.

But none of this would have mattered if it weren't expiration week. Companies and hedge funds and individuals had grown complacent about shorting call options to pick up extra income on individual stocks as the stocks stood still. Up until a week ago this was another fantastic strategy.

That all ended this week. Stocks blew through strikes one after another, causing some horrific short squeezes as people tried to bring in calls that had dwindled down and ended up having to buy common stock to protect themselves from losing their positions.

The combination of all of these led to an unbelievable rally that, I think, may be a harbinger of a level of volatility that nobody can even dream of.

In other words, maybe we haven't seen anything yet.

James J. Cramer is manager of a hedge fund and co-founder of 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