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"Navigate a Dangerous Market Moment"

By James J. Cramer
RealMoney Columnist
3/25/2004 8:53 AM EST

"Smells different around here. Smells like a bottom. Dangerous smell, that bottom smell. Often leads you to temptation. They ought to have rules for it. Let me give you some of mine.

First, you don't want to or have to trust the first move up. In fact, if you have been doing what I have been doing in my Action Alerts PLUS portfolio, you committed almost every last dime Wednesday, when the three conditions -- pessimism, oversold oscillator and price-to-earnings ratio thrift -- struck home.


One flaw, I have discovered, over and over, in almost every investor, is the failure to recognize how really long you are at the bottom. It's that failure that causes you to want to add more at the first sign that the market's going up. That's something that can be remedied only by one thing: selling! You must sell something today. That's the goal. Sell something so that if the market gives it up -- if the smell turns out to be wrong -- you are not caught flat-footed with too much inventory.

Nothing's tougher than selling the first move up. You are happy that it's occurring, but you must understand that if it fails, you can't be standing there holding your proverbial hat.

The second rule is that you don't want to oversell. You make your sale and you are so excited that you have a profit over yesterday that the next thing you start thinking is, "Holy cow, I really could book some terrific gains here." That's because others are frantically trying to get long, and as Jeff Cooper wrote Wednesday, these elephants move a lot of stocks when they get long.

So you make some sales, but nothing that would make it so that if we were to go up 3% or 4%, you wouldn't have enough on to make some good change.

Finally, remember that there are powerful forces at all times that want this market to fail, the forces that sell down Micron (MU:NYSE - commentary - research) on a $9 million revenue miss on a billion in sales, forces that want nothing more than to say "It's phony, let me show you how phony it is," and they proceed to pick up six lines and say that they are hearing that we're going on red alert for terror. They will stop at nothing to keep the market down.

So, keep these rules in mind. I have been there before. I have smelled every bottom, and about a dozen that turned out not to be bottoms. The latter is more important than the former at this stage of the game. "

(in www.realmoney.com)