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Deals drive stocks higher. Deals happen because people believe in the numbers. Deals happen because one company believes another company is undervalued. Deals are verification of price increases, unless they are done by serial acquirers.

People always underestimate the power of deals on the tape. They strike fear in the hearts of the shorts. They make the skeptical longs question their own reluctance. They make portfolio managers who were only thinking about EPS think about total upside. They make people who are shorting Siebel Systems ( SEBL) on possible earnings shortfalls reach for their neckties in case they need to hang themselves later in the day. Yeah, deals are that powerful.

Some people only buy stocks that can become part of deals. Last night on "Kudlow & Cramer" we had Mario Gabelli on and he mentioned to me that he wouldn't own big oil companies like Exxon-Mobil ( XOM) or Royal Dutch ( RD) because they couldn't be taken over. And he thinks this next leg of the market will be driven by dividends and deals.

How prescient.

Oracle's ( ORCL) bid in the face of an earlier bid from PeopleSoft ( PSFT) for JD Edwards ( JDEC) signals that the deal market is back in a big way. It is hugely bullish on the one hand, for all of its verification purposes, and on the other hand, it is simply necessary given that we will have a hard time justifying the next leg up on earnings.

Amazing market, isn't it?


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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to jjcletters@realmoney.com. Listen to Cramer's RealMoney Radio show on your computer; just click here. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."

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