Jim Cramer got a glimpse into the mind of the market on Thursday and was surprised at the connection between the rising price of oil and stocks that rally. It totally blew his mind.
"We live and die with oil. You figure out where oil is going, then you have figured out where the market is going," the "Mad Money" host said.
As the price of oil rose on Thursday, Cramer found something amazing — it is not the averages that rally when oil goes higher, it is only certain parts of the market.
Crude's rally on Thursday seemed counterintuitive to Cramer. The surge in oil was not based on any change in fundamentals; the truth is that crude is so oversold that it was finally due for a bounce.
Things went from counterintuitive to completely crazy when Cramer saw what stocks rallied as oil spiked. There were colossal gains in consumer spending stocks like retailers, restaurants and travel and leisure stocks. The ultimate lunacy was when Cramer saw the airlines and cruise ship stocks rally.
What do all of these stocks have in common? Their earnings go up when the price of gasoline goes down.
Read more from Mad Money with Jim Cramer
"The big portfolio managers who buy stocks in bulk have collectively decided that as oil goes, so goes the economy. If oil is headed south and south fast, that means we are going into a recession and all of these earnings for restaurants, travel, leisure and retailers will be annihilated," Cramer said.
Cramer speculated that money managers refuse to pay up for a stock like the airlines if they think the U.S. is headed into a recession. But if oil can bounce that made them think there was no recession in sight, so they loaded up on this group.
Ultimately, the buyers of these stocks refuse to accept the idea that the price of oil has gone down because there is too much supply. They believe that oil's decline is all about the lack of demand.
Of course, the rally for these stocks can be reversed if oil goes back down. And it might sound totally ridiculous that the same companies that benefit from lower oil prices are the strongest performers, but Cramer disagrees.
"I'm simply saying nope; they are rallying because when oil goes higher, this market's clinically depressed mind starts to believe that the consumer might live to spend another day instead of being mired in the coming Chinese-inspired, Fed-induced recession," Cramer said.
Ultimately, it is the fear of a recession trumps the benefits of lower oil prices in the stock market.