Any time Jim Cramer sees a day like Tuesday, where the averages start out the day getting hammered and then come roaring back, he wants to know what the heck is driving the psyche of the market. When you know what is driving the tape, then investors can get their favorite stocks at the best prices.
"I like to judge a market based on how stocks react to earnings. If they go higher on better than expected numbers and raised guidance, then I know the market's behaving rationally," the "Mad Money" host said.
This was the case with PVH Corp, which roared on terrific numbers on Tuesday. Or how about Cracker Barrel? This is one restaurant chain that is directly correlated to lower gasoline prices, and it keeps on winning.
But the trick to the market is that it is not just about earnings. Cramer also likes to watch how stocks react to news. This was a mixed session on Tuesday, as Cramer saw that the auto industry announced fantastic numbers and the stocks failed to react positively. Geez! One would think that at least Ford, Fiat and GM would hit the gas.
Cramer also likes to watch how interest rates impact the market. He sees that, these days, investors are actually rooting for higher interest rates because the largest group in the —the financials—desperately need them to go higher in order to meet earnings targets. Thus, when Cramer saw rates shoot up this morning, he was encouraged by it.
He also watches oil because there is so much money flowing into it; it oddly went higher on Tuesday. As long as crude doesn't go above $65, Cramer is happy because the market takes it to mean the economy is strong.
But what is the most important thing to Cramer? The .
"This thing, this currency, has become the source of the U.S. economy. It has made our companies pushovers versus the rest of the world. We are pathetically allowing virtually every other country to devalue their currency so they can club our companies and let theirs prevail," Cramer said.
As far as he is concerned, there has to be a sign that the dollar is peaking in order to have any sort of sustained rally right now. So, as soon as investors see this sign, they should jump up and down and applaud the greenback's decent.
Cramer used the example of PVH Corp, which finally had its first upside surprise in earnings since its acquisition. Its earnings before interest, taxes, depreciation and amortization were up 25 percent. And its once-struggling brand Calvin Klein business had a fantastic 10 percent increase in same-store sales.
But if it weren't for the superfreakin' dollar, PVH would have seen its earnings increase by a whopping 20 percent! In short, PVH is finally killing it, and it is clear that this stock was a real bargain before it shot up 7 percent on Tuesday.
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However, the action with PVH taught Cramer that the dollar has become so out of control that it makes fantastic earnings from an American company look mediocre. Additionally, when Cramer sees the move of the euro becoming stronger like it did on Tuesday, it gives him hope that maybe the strength of the superfreakin' dollar is finally over.
Why does Cramer think this? First of all, he saw inflation in Europe on Monday night, which means that the European Central Bank may be less inclined to debase its currency. Second, there are also reports that a resolution could finally be found in Greece. That would allow the euro to finally climb.
"Today we saw this market's true colors. A superfreakin' powerful dollar is, at this point, an abomination for stock prices…You get a cheaper dollar, and our stock market can ultimately follow in the footsteps of PVH and go higher. Otherwise, forget about it," Cramer said.
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