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Why the Markey Rallied on Tuesday

The market finally caught a break on Tuesday, Cramer said during Mad Money, with the Dow jumping 150 points and the S&P 500 gaining 1.3%. At last the sell-offs, which had little to do with the actual businesses of stocks and much more to do with the vicissitudes of foreign countries and the way hedge funds trade them, were reversed.

What can investors learn from this rally so they can catch the next one?

First, right now our stock market is deeply tied to the European markets, the Mad Money host said, because some of their countries seem to be on the verge of filing the sovereign equivalent of bankruptcy. For this reason, hedge funds sell everything and short everything, including our markets. Also, as the crisis depended, Jean-Claude Trichet, the European equivalent of our Federal Reserve Chairman Ben Bernanke, cut short his trip to Australia to deal with the emergency. The hedge funds saw this as a sign that Trichet was going to solve the crisis, and the market started rallying.

Second, the market likes it when the dollar is weak. Cramer said this may seem completely backwards to investors, but big funds are under the impression that our companies do better with a weak currency, that the earnings are better. Coca-Cola, for example, reported a terrific quarter today and the stock moved up more than the market because of powerful growth in China, which has no currency translation gain.

Third, the market wants oil to rally as it did today, with the price up $1.91. The investors who buy on days like today regard oil going higher as a positive sign, one that shows the economy is getting better not worse. These buyers believe that oil couldn’t be going higher if things were all that bad. Even though, Cramer wondered if consumers would be willin to spend their hard-earned cash if gasoline was at $3.50?

Finally, copper went higher today. Since China is the be-all and end-all of the world’s economic growth, Cramer thinks this is a signal that their country is still expanding.

The bottom line: A number of different factors caused the market to rally, Cramer said, but as usual lately stocks are just along for the ride.

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