The Bottom Fishing Begins

The day started with a deadly whiplash effect caused by sloppy selling. The opportunity here requires patience and hard work.
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One thing is certain, we won't get an end to this selling with these crazy higher openings. The pattern where we open higher and then fail is simply deadly. It has never produced a tradable bottom that I know of.

We need to have the market open flat and then go right down, or, even better, start way down and then rally. The latter is the textbook bounce that I am waiting for. Everything else just seems to prolong the inevitable.

We did some selling near the end of the day as well as some shorting, hoping that we would get that kind of cathartic selloff soon, but maybe that's almost too-wishful thinking.

A slamdown opening, with everyone puking up every single last Net stock, would normally be how a turn could occur. That's why I focused on the true problem here: The newer trader's innate inability to take a loss and move on. Many of the people who have bought stocks in the last year are used to buying dips. That works only if the selling reaches a climax and everyone who wants to sell has sold.

But with these Net stocks, people don't want to sell until they have to. That's why you get disorderly runs on stocks. I keep harping on

margin selling because when I see stocks go down in the last half hour of trading, it reminds me so much of what I used to have to do to clients who didn't get the collateral in when I was a broker. I would have to sell with all my might because all I was trying to do was raise cash, any cash, to meet the repo man. I only had a couple of clients who borrowed money, but they all got crushed at one time or another, which led to the type of forced selling I saw in the last half hour today. After the close today one thing had changed. People who are not in the sector -- fund managers, e-mailers, fellow travelers -- have begun to talk about which Net stocks may be doing well that have fallen so much that they are actually cheap.

Unfortunately, the ones I am looking at to buy are small cap. I will not use this forum to talk about them. Suffice it to say that stocks that are down 50% to 70% from their highs, that are through the offering prices, and that are not burning cash at a furious pace and have good money in the bank are all being considered by my fund to be excellent possibilities.

But we have bought nothing yet. We have to do work. We have to call analysts. We have to see if we can get meetings with managements. We have to look at the products, get the word about whether the brands have reach and the companies are having a good quarter.

Bottom fishing, true bottom fishing, requires the patience of the fluke fisherman when they aren't biting. It takes time. You have to get it right because the kinds of stocks we are talking about have no liquidity and can't be gotten out of if we make a mistake, without wrecking the prices with our own exit.

Nevertheless, to not do this is plain stupid. When there is forced sloppy selling by margin clerks and brokers, that is opportunity to sink your teeth into the next great

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

jjcletters@thestreet.com.