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The Volcano Lover


I finally blurted: "I have a problem with this Nazzdog position. It's choking me, it is right here, going here" -- I drew a line from my gut to my throat -- "it's just killing me. We gotta do something. We can't take these losses. It's too big. It's the giant steaming elephant turd in the room, man." Todd looked at the floor. Jeff knew what was coming. All our rationality hadn't made us a dime. All our cool capital commitment and tungstenlike grit hadn't called the bottom. We had not respected the bear enough. We had not given him his due.

It was time -- as it was in every serious sell-off I have crawled through -- to make a sacrifice to the Trading Gods. It was time to take a loss. To admit, in some small way, that we were wrong about this market. No matter our strict scales and our levels and our precision. This sucker wasn't stopping. Not here, not now, not down 12 percent. Not unless we blinked. Not unless we took action. Not unless we threw a maiden into the volcano.

Todd-o knew I was right, but he didn't want to admit it. Jeff, Wharton and Columbia Business School scholar that he is, just looked away. No matter how many times this happens, Jeff refuses to bow to superstition, but he never fights us. He knows how bottoms get formed.

"Take some Nazzdogs and sacrifice them," I said.

"But Jim, this is it, down 12 percent, down 24 in a matter of days, this is what it looks like at the bottom," Todd said. "You know that." As he spoke I glanced at the TV: NASDAQ and the Dow were down 500 points each, the worst moment of the day so far. Of course I knew it. "But how are we going to get this goddamned market going the other way," I asked him, "unless we capitulate?!"

We went back to the desk, and at 1:15 p.m., tails between our legs, we made the sacrifice, selling 1,000 contracts, a sizable chunk of our buydown bet, which we had begun at $19 the day before. Take a look at where we sold those nasty Nazzdogs. Take a look at the time: 1:23. Take a look at the price we got: $6. Oh my, six bucks, six little nothing bucks (multiplied by 100,000, of course). They reflected the maximum moment of decline in the NASDAQ, the maximum low for Intel and Sun and Microsoft and Cisco during this whole downturn. The bottom. The turn.

The moment we got the report, they lifted. Take a look at the price two minutes later: $7. Ten minutes later: $8. An hour later: almost double, as NASDAQ rose inexorably from down 3,600, where we had sold the calls on the index, to 4,100, the largest one-day move up off the bottom ever. That's an amazing comeback, triggered by our sacrifice to the Trading Gods.

Yes, the market bottomed when we made that sale. I can't come up with any other explanation. There certainly wasn't one on my screens or on TV or in the papers the next day. Nothing done by Greenspan or Summers or Clinton or Rubin or Buffett or Abby Joseph Cohen.

Markets bottom only when the gods of humility are appeased with offerings of arrogant strategies by steely-eyed traders designed to withstand the stress and strain of the worst markets. They bottom when guys like me can't take it anymore.

And that's why we rallied Tuesday. Fortunately, this time, we only had to throw the maiden in. One day, maybe it will have to be the whole tribe.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had positions in Nokia, America Online, Cisco, Intel, Sun Microsystems, Microsoft, 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 comments at E-mail:

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