The Buy Program Vortex

If you just got thrown for a loop by the market's recent action, think of markdowns at your favorite clothing store.
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Did you feel the ground rumble? That was some sort of weird buy program. An institution bought a lot of stock futures. When the stock futures got out of line with the S&P, traders bought stocks and sold futures. The result was a spurt, a totally unsustainable spurt that took the stock market into the black.

This inconsequential action probably has many of you newer players mystified. How did I get such a crummy report, you might be wondering. How did I buy a stock a half-point higher than it is now? Or a full point, in less than a few minutes? That's what happens when a big institution comes in and puts money to work in one big gob. It is like a large buyer going into a clothing store and asking for all of the inventory the store has. If you come in at the same time as this buyer, you paid top dollar, especially if the merchant was able to adjust prices up several times to take advantage of the wave of demand. You may have gotten caught in the buy program vortex.

Then, seconds later, the clothing store got more merchandise in. The prices came down. The buyer was gone. Suddenly the clothing store was long too many coats and gabardine pants and cotton sweaters. Way too many. The store had to cut prices to move the products. Drastically.

That's what happened.

Don't kick yourself. It happens every day. It is why I say you have to take advantage of the sudden selloffs, as that is just the clothing store knocking off price to move merchandise.

In a store you would understand this. You would accept that the store could raise the price on a hot product. You would especially understand the need to cut price if there is too much inventory.

So accept it here; it is part of the process of buying and selling, just massively accelerated by the ease with which sizable amounts of futures can trade.

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.