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[Ulisses Pereira]

"The Rally Nobody Wants: A Thousand Dow Points"

By James J. Cramer
10/14/2003 09:29 AM EDT


"Bears and bulls alike should fear the same thing here: a 1,000-point rally on the Dow between here and year-end.

That's right, not only is the thought not wild or crazy, it should be top of mind. Think about it: Nobody's calling for a 1,000-point rally. There are tons of people who think the market could wind its way lower. Myriad folks are betting that we will go back to Dow 9000. I say that because I watch the put activity and I know people are betting that way.


Nobody, except the perma-bulls, whom I can't stand anyway, thinks that it is going to rally 1,000 points.

But it's doable, simply because the hedge funds are so underinvested.

Think back to the seminal moment in 1999 when George Soros' firm was underinvested and Julian Robertson's firm was betting against the Nazz. Those two combustible forces combined to roll the market up to levels that never should have occurred -- and it happened overnight.

We don't have two heavyweights pushing their agendas like that. We do have thousands of funds that are so far behind the market that we could see massive capitulation and takes of stocks that would boost Dow equities like United Technologies, 3M and Caterpillar to $100 without a problem. IBM, if it is goes, goes right through par in this environment. AT&T commentary - can trade to $25. Hewlett-Packard's having a dyn-o-mite quarter that could take it to $25. Microsoft rallies through on a good quarter, and I've been saying that Intel's got $40 all over it.

In fact, the Dow's packed with stocks to make a higher case for. You think that General Motors can't go to $50 in a heartbeat; I think it will report a huge upside surprise from Ditech, the mortgage company, which is every bit as powerful as Countrywide. Honeywell showed you what could happen to that stock on a positive Barron's article; where will it go with asbestos reform? I'm talking my book on J.P. Morgan , but can't that stock go to $50 without being expensive? It's been there before on less earnings power. Same with Citigroup: it was in the $50s before the big mess, and it can go back there. American Express could trade to $55 on the back of Bank of America alone.

Procter & Gamble is the cheapest stock in the Dow on earnings; that sucker blasts through par on the next upgrade. Wal-Mart's having a great autumn; the same people who pay $58 for it would pay $65 without a problem. Ditto for Home Depot to $40.

If McDonald's really has turned, which I think it has, why not pay $30 for the stock? Coca-Cola has the wind of a weak dollar at its back, plus it never lost the halo from Buffett; there's always someone willing to pay in the $50s for that one. International Paper and Alcoa both are too cheap. They each could trade up 5-6 points without being expensive.


Altria's dividend should allow the stock to go to $50 if someone wants to take it there.

Boeing's seeing a turn, subtle as it is, but one that could make it go to $40 without much of a stretch.

How much longer can Johnson & Johnson and Merck stay down here given the fact that Congress is in such disarray that it seems unlikely that anything can get through health care-wise?

ExxonMobil's having a blowout quarter; if someone wanted to walk the stock to the mid-$40s, others certainly would oblige.

And that leaves the problematic stocks:

General Electric, which has to clean up a bunch of sellers, but isn't going to go much lower;
Disney, which would go up 5 points on an Eisner firing;
SBC, which truly does stink;
Kodak, which is lucky to stay in the $20s, given the diminution of its business; and
DuPont, which can't seem to figure anything out.
That's all right, the Diamonds will boost even that ballast.

Yeah, you see how it could happen. I, for one, think it would be disastrous if it did. That's because old Federal Reserve Chairman Alan Greenspan immediately would take rates up 200 basis points because he would say that the market forecast the recovery, even though the market would be forecasting just the hedge fund catch-up.

Of course, in the midst of this wholesale re-evaluation, President Bush's numbers would jump, which would put the final 500 points on the Dow in December. Yeah, I see that it could happen, in all of its sickening glory. It is precisely what nobody wants: the bears because it ruins their firms, the bulls because it insures a steep decline next year.

Oh well, I guess it could be in the cards then. I know that if I were at the hedge fund, doing my predictions, I would make this 1,000-point blowoff the Cowboys-like favorite to win the Super Bowl. Ridiculous, preposterous -- and looking more and more likely by the minute. "

(in www.realmoney.com)