Cramer: Is China Stronger Than You Think?

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If you're counting out China, it's possible you're making a terrible mistake.

For months chatter on the Street had everything to do with China and whether the world's second largest economy could underpin global growth.

Lately Wall Street had become skeptical, especially after a high profile report suggested China's rapid expansion had generated the largest housing bubble in history.

Considering the housing bubble in the US was responsible in part for the worst downturn since the Great Depression, a bigger one in China seemed disastrous. Wall Street's concern seemed warranted.

As a result, sectors of the stock market tethered to China had lagged the broader market.

"Investors had been unwilling to aggressively own the so-called China stocks," explained Jim Cramer. "Those are stocks involved with copper, aluminum or iron, and the machines used to turn these materials into commercial products."

However, on Tuesday that may have changed. Cramer thinks two catalysts have triggered a shift in sentiment.

1. The latest economic data out of China showed inflation wasn't as bad as expected. Perhaps more important food prices increased at a slower pace. The Street interpreted results as a sign Beijing would continue efforts to stoke the economy.

2. During the Alcoa earnings call, CEO Klaus Kleinfeld cited China as a region of increasing sales."He talked about the Chinese still having strong demand for new cars, something we heard from Ford too," Cramer explained. "They still have a voracious appetite for new trucks. And they are using 3 billion more aluminum cans than last year." That was far more bullish that the Street expected.

Those two little developments may seem relatively minor, yet together they had a big impact on the stock market.

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"The takeaway, broadly, is China's back," Cramer said with unbridled enthusiasm. That's why the ETF that tracks copper gained on Tuesday as well as copper miner Freeport McMoRan. It's also why US Steel and Nucor and Vale rallied. In addition, strength in China drove gains in Dow Chemical, Caterpillar and Cummins. Other industrials rallied too.

All the stocks mentioned above are China related.

And Cramer thinks the shift in sentiment may have legs, which in turn suggests these sectors could drive a broader S&P advance. All because of the two developments outlined above.

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"Look, I know that all of this seems too good to be true – a shift in sentiment due to an inflation number and a positive conference call from Alcoa," Cramer said, "But until recently the market had counted out most stocks tied to China."

That dynamic has now changed.

"Who knows, you get another good Chinese number tomorrow, and next thing you know these stocks become the leaders in the next leg of the rally!"

Call Cramer: 1-800-743-CNBC

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