Mad Money

Cramer explains the nonsensical action in oil and airline stocks

Key Points
  • "Mad Money" host Jim Cramer pointed out the contradictory action in oil prices and airline stocks, two related sectors benefiting from the bull market.
  • Delta's earnings report ignited positive "pin action" in its cohort, proving wrong critics that worried about ongoing fare wars, Cramer said.
  • Meanwhile, rising oil prices should negatively impact airline stocks, but so far, they aren't, Cramer noted.
Nonsensical action in oil and airline stocks
Nonsensical action in oil and airline stocks

As a positive earnings report from Delta Air Lines boosted the averages on Thursday, CNBC's Jim Cramer noticed some unusual trading action occurring that he pegged to the bull.

"Oil and airlines, they don't mix. Jet fuel is the No. 1 cost for the airlines, so they shouldn't be able to rally at the same time — unless it's their stocks we are talking about," the "Mad Money" host said. "I keep highlighting the bizarrely bullish ways that stocks are trading and sometimes they're totally in your face, like this simultaneous move in the price of oil and the airline stocks."

Delta's top- and bottom-line earnings beat drew buyers out of the woodwork after the market had decided that the airline stocks were overvalued due to growing competition.

In its report, Delta pushed back against the notion that rising costs and airline "fare wars" were putting pressure on its business. Shares of Delta were up 4.8 percent as of Thursday's close.

Delivering 4 percent higher fares per seat per mile versus last year, Delta flaunted its revived price discipline, making Cramer even more bullish on the airline's prospects.

"Given its profitable growth, the stock is way too cheap, trading at a minuscule nine times next year's earnings," the "Mad Money" host said. "The pin action from the amazing Delta quarter was so strong that ... United Continental and American also saw their stocks rally nearly 5 percent."

At the same time, the price of oil — a major variable for the airlines that they can't control — rocketed past $64 a barrel to multi-year highs.

Cramer said that typically, this kind of move in oil makes hedge fund managers instantly short the airline stocks, betting that they'll be hurt by rising fuel costs.

Instead, stocks in both sectors are surging in tandem, with even the worst of the oil names showing signs of strength.

And it's not like the market has forgotten the effects of rising oil prices on the airlines — shares of Boeing also got a boost because airlines can buy new jets that use less fuel from Boeing to lower their fuel costs.

Strange, unison moves like these have become a theme in what Cramer has dubbed the bull market "in beast mode."

"To borrow a line from F. Scott Fitzgerald, the test of a first-rate market is the ability to hold two opposing rallies at the same time," the "Mad Money" host said. "That's something this wonderful market keeps doing with aplomb. I say get used to it."

WATCH: Cramer on the market's contradictory rallies

Cramer explains the nonsensical action in oil and airline stocks
Cramer explains the nonsensical action in oil and airline stocks

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