Why the Selloff Was Contained

This week's market drop is now but a memory, but Cramer takes a look back at why the selloff was trampled by the bulls.
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It's seems like eons ago, but we had a nasty selloff in the

Nasdaq Composite Index

this week. I was going back and reading a story I wrote earlier in the week about how I thought the selloff would be contained and you had to buy because all of the checks were in place: no follow-through from Europe, benign

NAPM

, no downgrades, legs of

Yahoo!

(YHOO)

(which is now taking out the high of its addition to the

S&P

).

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So I want to take a moment to assess what happened in that selloff and why it ended. First, I think the selloff's speed and velocity was typical of a bull selloff: The best got hit hardest, the worst did nothing.

Second, I think some sort of program that locked in some of the bigger venture capital gains may have been at work. (I have not been able to prove this, so chalk it up at rumor.)

But finally, I think this market is a total triumph of lack of supply vs. massive demand. In the absence of bad news, stocks that everybody loves -- and here I am speaking about the stocks we feature on our chat page -- have little resistance. They seem to lap up secondaries. They love supply.

For example, check out

JDS Uniphase

(JDSU)

. Here is a stock that had a giant piece of supply come to market in the midst of that selloff. What happened? As my ex-trading wife would say, "Stock begets demand" in a bull tape. The sale of the million-plus shares of JDS actually stimulated the market's appetite for the stock because you didn't have to buy it piecemeal as you would if you wanted to buy

Kana

(KANA)

or

E.piphany

(EPNY)

.

In other words, the selloff was classic -- swift, nasty, brutish and it stimulated demand. It was, in a word, healthy. And the bull lived to play again. With his teddy bears!

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long JDS Uniphase, E.piphany and Yahoo!. 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.