We are getting another commodity linkage day that is driving up the single most important part of this market: oils and minerals.
As anyone focused on Australia knows, we have reverted to a world where we take our cue from the commodities markets and commodities stocks.
What's hilarious and counterintuitive about this action is that the futures buyers are taking their cue from the dollar. They are buying the commodities because the dollar's weaker. But the stock buyers are buying the stocks because they think the economies of the world and the U.S. must be stronger or the commodities themselves wouldn't be going up.
So you have the bizarre world, like today, where oil demand is down -- acknowledged by everyone I know -- but oil is up because of the dollar, which then makes the earnings of the oil companies too low because they are somewhat levered to the price of oil. I say "somewhat" because the linkage isn't as 1-for-1 as someone who doesn't know these stocks would think.
Given that the oil cohort is running toward 12% of the S&P and is a key driver of the stock indices, we rally on something we should be going down on -- weaker demand! That's why when you see the oil futures up, you know you are home free for the day even though a rally in oil is a tax on the American consumer.
This is all to say that we should rally on the strength of the American consumer and we are rallying on the weakness of the consumer.
Which, again, is why it is all so hard to figure out and really hard to short, when the shorting game should be most relevant given the data.