Fear Reigns On The Floor

By James J. Cramer

The buy-on-dips strategy, the only one you needed to know for this decade, finally failed last week. Investors, including many pros like me, had grown used to taking advantage of every substantial decline in their favorite stocks, but now find themselves deluged with more shares than they can carry in a truck. Why didn't the dip turn back up this time? It certainly had nothing to do with the U.S. Every new economic indicator, from employment to wages, came in stronger than expected last week. But we're now in a market where losses in Russia get translated into margin calls in the U.S., as leveraged fund managers frantically sell anything that's still moving.

As wild as the week may have looked to spectators, in the trenches on Wall Street it was hand-to-hand combat. I tried to make stands on stocks big and small, only to be overwhelmed by huge sellers. Take General Electric: on Friday I bought shares at $75, then $74 and then $73, and then I doubled down at $72 with 18 minutes left before the bell. For a minute, I wanted a hemlock cocktail, as it flashed on my screen that Microsoft had just overtaken GE as the world's largest capitalization stock. But then the mischievous GE seller disappeared. The stock rose right back to 75 7/8, putting the company's total market value back above that of Bill Gates and his gang--and, more important, giving me my best trade of the week when I badly needed a win.

Throughout the week, name-brand stocks like Citicorp and J.P. Morgan--stocks that usually trade in eighths and quarters--dropped in two- and three-point gulps. I tried to scoop up some Chase bank shares at $47, only to be told I had bought it at $45--seemingly good news, but the stock was at $44 by the time I got confirmation of the trade. Sure, some of the lack of liquidity might stem from the large number of traders still vacationing, but most of it came from fear--fear that if the sellers didn't act fast, someone would act faster. Those who don't have to look at their positions day to day could feel gratified by the discounts. In my foxhole, though, the battle was to contain the losses and preserve the capital, not to take the offensive, at least not until the political leaders of the world's big economies get together to restore confidence in currencies from the ruble to the real. When they do, the rush to buy will no doubt be as powerful as the market's rise after the Gulf War. So the trick will be to stay in the game until that last seller completes his desperate act and only the buyers are left standing.

James J. Cramer, who writes for thestreet.com is a hedge-fund manager. Nothing in this column should be construed as advice on whether to buy or sell stocks.